TMI Blog1986 (5) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... constitute an asset under section 2(e) of the Wealth-tax Act, 1957 ('the act'). 2. we have heared the learned counsel for the assessee, the learned departmental representative and the counsels for the interveners who appeared before us. The learned counsel for the assessee first contended that a deposit in the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 ('the CDS Act'), is not an asset under section 2(e) (2) (ii). He also contended that it was an annuity and was accordingly exempt both because it was not purchased by the assessee and also because the terms and conditions relating thereto preclude commutation of any portion thereof into a lump sum grant. The learned counsel took us through the CDS Act, the Annuity Deposit Scheme, 1964, and chapter XXIIA of the Income-tax Act, 1961 ('the act') relating to the annuity deposits. He also referred to the definition of the 'annuity' in section 280B (4) of the 1961 Act which reads as follows : "4. 'Annuity' means any annual installment of principal and interest thereon payable by the central government under the provisions of section 280D;" He also referred to the provisions of section 280D of the 1961 act relating to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable every year regarding principal repayable in five installments may be fixed but the amount of interest payable would be a variable sum. The learned counsel did not dispute that this was indeed so but he pointed out that even under the Annuity Deposit Scheme, the interest was payable at such rate as may be notified in section 280D and it was urged that the power to fix the rate of interest includes the power to vary the rate under section 21 of the General Clauses Act, 1897, and, therefore, even the fact that the rate of interest under the CDS Act was variable, did not affect the claim that the installments repayble under the CDS Act were an annuity. 5. The learned counsel for the assessee took us through the first decision of the tribunal in the case of WTO v. S. D. Nargolwala [1982] 2 ITD 396, wherein the Delhi Bench of the Tribunal held following the supreme court ruling in P. K. Banerjee's case that the Deposit in the Compulsory Deposit Scheme was not an annuity. The Tribunal held that the repayment under the compulsory deposit scheme was a variable amount both as regards the interest and the repayments components. It was also held that it could not be an annuity since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd of litigation looking large at her relevant date because the compensation awarded by the Collector and enhanced by the civil court would be subject to challenge in appeals. The other interveners were not represented at the hearing. 9. As against this the learned departmental representative, Shri Kamat placed reliance on the reasons given by the Bombay Bench 'D' in the case of B. D. Garware [WT Appeal No. 2098 (Bom.) of 1981, dated 11-2-1982] to the effect that the amount of deposit under the Compulsory Deposit Scheme is includible in the wealth of the assessee but its value had to be discounted. The learned departmental representative did to rely on this order so far as the second proposition is concerned. The learned departmental representative strongly relied upon the first order of the Tribunal in the case of S. D. Nargolwala. He then referred to the meaning of 'annuity' as given in CWT v. Mrs. Dorothy Martin [1968] 69 ITR 586 at 592 (Cal.). This ruling had been approved by the Supreme Court in the case of CIT v. Arundhati Balkrishna [1970] 77 ITR 505. For the meaning of annuity he also relied on the illustrations in section 173 if Indian Succession Act, 1956. 10. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done if it was an annuity. 13. Alternatively it was contended that even if it is held to be an annuity, it could still not be treated as exempt, firstly because it could be commuted, though in the case of extreme hardship only. It was, however, urged that this power would be used by the ITO judicially and not capriciously and would, therefore, be justiciable. Secondly, it was urged, that the annuity was purchased by the assessee meaning thereby that he paid for it and there is no requirement that the purchase must be voluntary under the act where the words used in respect of 'annuity' under section 2(e) (ii) are 'purchased' by the assessee. The plain meaning of the word 'purchase' is contrary to a 'gratuitous receipt'. If the assessee has obtained this annuity at his expenses then it is purchased but if it is received under a will then it could not be said to be purchased by the assessee. Relying on CIT v. T. N. Arvinda Reddy [1979] 120 ITR 46 (SC) it was urged that the meaning to be given to the terms used should be the meaning as commonly understood. In that case T. N. Arvinda Reddy the supreme court held that the word 'purchase' used in section 54(1) of the 1961 act had to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related to a fixed proportion of capital." It would clearly sow that when the assessee receives one-fifth of the amount deposited by him in each year for a period of five years, after the lapse of two years of deposit, it cannot be treated as an annuity because it is related to a fixed proportion of capital. The concept of annuity was first discussed at length by the Calcutta High Court in the case of Mrs. Dorothy Martin. This ruling of the Calcutta High Court was approved by the supreme court in the case of Arundhati Balkrishna. Their lordships observed in this ruling that annuity is a well-known term. Instances of annuity appear in the illustration to section 173 of the Indian Succession Act and it is possible to note that in each case a specified sum is mentioned. Thus, it is possible to hold that the word 'annuity' a well-known legal term, has been used in the act in its well-known legal meaning, namely, a fixed sum of money payable annually or periodically. In Arundhati Balkrishna's case, the Supreme Court held that the ordinarily an annuity is a money payment of a fixed sum annually made and is charged personally on the granter. 18. In P. K. Banerjee's case, again the que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruling the deposit in Compulsory Deposit Scheme cannot be called an annuity. 19. That apart, in the instant case, as we see, the repayment of the instalment due on 1-4-1985, of both principal and interest were postponed by one year by a statute. That indicates that the parliament did not treat it as an annuity because the very fact that repayment for one year was denied on the recipients would be against the concept of the annuity itself. 20. Further, the introduction of section 7A in the CDS Act granting exemption under section 5 of the 1957 Act to the Compulsory deposits clearly showed the intention of the legislature to grant this specific exemption because the deposits under the Compulsory Deposit Scheme would otherwise not have been entitled to any exemption with regard to the Wealth-tax. If these deposits could be exempted as an annuity, section 7A would be rendered redundant. The least we can say is that this shows the intention of the Parliament to give a specific exemption to Compulsory Deposit Scheme deposits which in the opinion of the parliament were not otherwise exempt. 21. The introduction of section 8(2) entitling a depositor not to withdraw any amount of inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased' used in this section.'Purchased' would obviously mean, in plain English, that the assessee had paid for obtaining this annuity. The concept of compulsion does to enter into the consideration whether it is purchased or not. The Supreme Court has held in T. N. Aravinda Reddy's case that the word 'purchased' in section 54(1) of the 1961 Act had to be given its plain meaning, viz., buy for a price or equivalent of price. We are of the opinion that this meaning should also be given to the word 'purchased' to in section 2(e) (2) (ii). For all these reasons we hold that the deposit in the Compulsory Deposit Scheme is not exempt because it is not an annuity, nor do the terms thereof preclude the commutation and also because it is purchased by the assessee. 26. As regards the question whether the deposit in the Compulsory Deposit Scheme account even if it is to be included in the net wealth of the assessee has to be discounted on account of the restrictions on the withdrawal of the same is concerned, we are of the opinion that when it is a deposit in a bank and it is earning a very high rate of interest which is payable only on long-term deposits and the amount is repayable in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
