Commissioner of Wealth Tax, Gujarat Ahmadabad
Vs. Mrs. Arundhati Balkrishna [1970] INSC 41 (25 February 1970)
25/02/1970 HEGDE, K.S.
HEGDE, K.S.
SHAH, J.C.
GROVER, A.N.
CITATION: 1971 AIR 915 1970 SCR (3) 819 1970
SCC (1) 561
CITATOR INFO :
F 1973 SC2258 (9) D 1976 SC 662 (4,17) D 1980
SC 478 (14) RF 1981 SC 401 (16) RF 1986 SC 268 (2) D 1987 SC 522 (43)
ACT:
Wealth Tax Act (27 of 1957), ss. 2(e) (iv)
and 5(1) (vii)Receipt of share from trust funds--When 'annuity'Jewellery
intended for personal use-Whether exempt.
HEADNOTE:
The assessee was an individual. She was
entitled for her life, to an aliquot share of the income arising from the funds
settled on trust by three trust deeds and 'received payments of such share. She
also possessed jewellery, intended for her personal use, of the value of Rs.
80,000.
On the questions : (1) whether the payments
to the assessee were annuities falling within the scope of s. 2(e)(iv) of the
Wealth Tax Act, 1957, whose value could not be included in the computation of
her net wealth; and (2) whether the value of the jewels was exempt under s.
5(1) (viii).
HELD : (1) Under the trust deeds, the
assessee was not entitled to any fixed sum of money. Therefore, the payments to
the assessee under the trust deeds could not be considered as annuities and
hence, she was not entitled to the benefit of s. 2(e)(iv). [824 E-F] Ahmed G H.
Ariff v. Commissioner of Wealth Tax, Calcutta, [1970] 2 S.C.R. 19 followed
Commissioner of Wealth Tax v. Mrs. Dorothy Martin, (1968) 60 I.T.P586, approved.
(2) Under s. 5 there are four provisions
dealing with jewellery, namely, (a) jewellery intended for' the personal use of
the assessees. 5(1)(viii), (b) jewellery which forms an heir loom-s.
5(1)(xiii),(c) jewellery in the possession of any ruler-s. 5(1)(xiv); and (d)
jewellery in general. 5(1)(xv). Under s. 5(1)(xv), as it stood in 195859, every
assessee was entitled to deduct a sum of Rs. 25,000 from out of the value of
the jewellery whether the same was intended for personal use or not; but under
s. 5 (1) (viii) the value of all the jewellery intended for the personal use of
the assessee stands excluded in the computation of the net wealth of an
assessee. Therefore, the jewellery in the present case is exempt under s.
5(1)(viii).
[825 D, E-G]
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1991 1992, 2010 and 2011 of 1968.
Appeals from the judgment and order dated
October 9, 1967 of the Gujarat High Court in Wealth Tax Reference No. 3 of
1964.
B. Sen, S. K. Aiyar and B. D. Sharma, for the
appellant (in C. A. Nos. 1991 and 1992 of 1968) and the respondent (in C. As.
Nos. 2010 and 2011 of 1968).
8 20 N. A. Palkhivala and I. N. Shroff, for
the respondent (in C. As. Nos. 1991 and 1992 of 1968) and the appellant (in
C.As. Nos. 2010 and 2011 of 1968).
The Judgment of the Court was delivered by
Hegde, J. These appeals by certificate under s. 29 of the Wealth Tax Act, 1957
(to be hereinafter referred to as the Act) arise from a reference under s.
27(1) of the Act to the High Court of Gujarat. Therein four questions were
referred to the High Court for its opinion. -,These four questions really gave
rise to two questions of law viz. (1) whether under the three trust deeds
referred to therein the assessee got annuities falling within the scope of s.
2(e) (iv) ? and (2) whether the value of the jewels owned by the assessee was
exempt under s. 5(1)(viii) in computing the net wealth of the assessee ? The
assessee is an individual and the assessment years with which we are concerned
in -these appeals are 1957-58 and 195859, the corresponding valuation dates
being December 31, 1956 and December 31, 1957.
By a deed of settlement dated September 7,
1945 the father of the assessee settled certain shares of the Indian Companies
of the estimated value of Rs. 5,50,325/upon trust for the benefit of his two
sons and his daughter, the assessee. By another deed of settlement dated
October 12, 1945 he settled certain other shares upon trust for the benefit of
the assessee and her two brothers. All the terms of the two trust deeds
relevant for our present purpose are identical. By a deed of settlement dated
September 30, 1945, the mother-in-law of the assessee settled upon trust a sum
of Rs. 3,88,931/and shares of some Indian Companies of the aggregate market
value of Rs. 11,81,670/-. The assessee is one of the beneficiaries named in
that deed. The assessee also possessed jewellery of the value of Rs.80,000/-.
As regards the payments to be made to the
assessee under the afore-mentioned three trust deeds, the contention of the
assessee is that under each of those deeds, she has only a right to an
'annuity' and the terms and conditions relating thereto preclude the
commutation of any portion thereof into a lumpsum grant and hence in view of s.
2(e)(iv), the value of those annuities cannot be included in the computation of
her net wealth. As regards the jewellery her case is that they are articles of
her personal use and therefore their value cannot be taken into consideration
in ascertaining her net wealth. She contends that the value of those jewellery
is exempt under s. 5(1)(viii). The Wealth Tax Officer rejected both those
contentions and assessed her after including in her net wealth the value of the
benefits receivable by her under 821 the trust deeds in question as well as the
value of the jewellery minus Rs. 25,000/-, deduction given under s. 5(1)(xv) as
it stood at the relevant time.
Against that order the assessee went up in
appeal to the Assistant Appellate Commissioner. That officer agreed with the
conclusions reached by the Wealth Tax Officer and he accordingly dismissed the
appeal of the assessee.
Thereafter the assessee appealed to the
Tribunal. The Tribunal held that the payments to be made to the assessee under
the trust deed executed by her mother-in-law is an 'annuity' entitled to
exemption under s. 2(e) (iv). As regards the payments to be made to the
assessee under her father's, settlement deeds, it opined that as the assessee
was entitled to withdraw from the trust fund at her own discretion after she
attained majority and after she gave birth to one child, one half of the
corpus, to that extent commutation was possible. Therefore to the extent of one
half of the value of the annual payments to be made to her under those deeds,
the assessee was not entitled to exemption under s. 2(e)(iv) but she was
entitled to exemption as regards the other half. The Tribunal rejected the
assessee's claim for exemption under s. 5(1)(viii) i.e. in respect of the value
of the jewellery.
One a reference under s. 27(1), the High
Court of Gujarat held that the payments to be made to the assessee under the
three settlement deeds do not come within s. 2(e)(iv) but the value of the
jewellery is exempt under s. 5(1)(viii).
Both the assessee as well as the Revenue have
appealed against that decision.
We shall first take up the contention of the
assess6e that the payments to be made to her under the trust deeds are
annuities which by the terms and conditions relating thereto preclude the
commutation of any portion thereof into a lumpsum grant and hence are within
the scope of s. 2(e)(iv).
If those payments fall within the scope of
that provision, they cannot be considered as the assets of the assessee and
therefore their value cannot be reckoned in determining her net wealth under s.
2(m). Under s. 3, the charging section, only the net wealth of an assessee can
be brought to tax.
Hence we have to examine the terms of the
settlement deeds to find out whether the benefits conferred on the assessee by
any or all of those deeds can be considered as annuity.
As stated earlier the two settlement deeds
executed by the father of the assessee are expressed more or less in identical
language. It was conceded at the bar that whatever construction we may place on
one, would be equally applicable to the other. Therefore we shall take up -the
deed executed on September 7, 1945 by the father of the assessee. Under cl. 3
of that deed it is provided that the trustees, after deducting from the income
of the 822 shares in question, all-costs and expenses incurred in or about the
administration of the trust, should at the end of every calendar year pay the
whole residue to the assesses and her two brothers in equal shares. But after
the death of the assessee her heirs are not entitled to any share in that
income. Therein provision is made by the settler for disposition of the corpus
of the trust. But it is provided that notwithstanding anything contained to the
contrary in the deed of Trust after assessee attained majority and after the
birth of her first child when and so often as might be required by the
assessee, the trustees are required to pay a portion of the corpus of the trust
fund not exceeding in the whole one-half thereof to the assessee and this
payment of the corpus was to be absolutely freed and discharged from the trust
and provisions of the trust deed. The other provisions of the trust deed are
not relevant for our present purpose.
Under the trust deed executed by the
assessee's mother-inlaw on December 30, 1945, the husband of the assessee and
her two brothers-in-law were constituted as the Trustees.
Under cl. (a) of that deed, the trustees were
required to pay the income of the trust fund after deducting the expenses to
the assessee during her life-time. The rest of the clauses in that trust deed
relate to disposition of the corpus to different beneficiaries after the life
time 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 the benefits obtained by the assessee under those deeds
can be held to come within s. 2 (e)(iv).
The expression "annuity" is not
defined in the Act. In Halsbury's Laws of England, 3rd Edn. Vol.32 at p. 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 p. 11 13 "annuity" is defined 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." 823 In
Williams on Executors and Administrators "annuity" is described as a
yearly payment of a certain fixed sum of money granted for life or for years
charging the person of the grantor only. In Bignold v. Giles,(1), Kindersley V.
C.
described "annuity" in these words:
"An annuity is a right to receive de
anno in annuma 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 hered it ament, is not a tenement; and an annuity so
given is a base fee." Proceeding further the learned judge observed:"But
this appears to me at least clear; that if the gift of what is called an
annuity is so made, that, on the face of the will itself, the testator shows
his intention to give a certain portion of the dividends of a fund, that is a
very different thing; and most of the cases proceed on that footing. The ground
is, that the Court construes the intention of the testator to be, not merely to
give an annuity, but to give an aliquot portion of the income arising from a
certain capital fund." Illustrations of annuity given in s. 173 of the
Indian Succession Act also show that it is a right to receive a specified sum
and not an aliquot share in the income arising from any fund or property.
Ordinarily an annuity is a money payment of a fixed -sum annually made and is a
charge personally on the grantor.
On an analysis of the relevant clauses in
three trust deeds, it is clear 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.
She has undoubtedly a life interest in those
funds. In Ahmed G. H. Ariff v. Commissioner of Wealth Tax, Calcutta (2) , a
Division Bench of the Calcutta High Court held that the right of a person to
receive under a wakf an aliquot (1) (1859) Ch. 4 Drew 345; (Revised Reports 113
p. 390).
(2) 59. I.T.R. 230.
824 share of the net income of the wakf
property is an 'asset' within the meaning of the Wealth Tax Act, 1957 and the
capital value of such a right is assessable to -wealth tax.
Therein the Court repelled the contention
that the right in question was an 'annuity'. This decision was approved by this
Court in Ahmed G. H. Ariff & Ors. v. Commr. of Wealth Tax, Calcutta(1) and
the same is binding on us. A similar view was taken by another Bench of the
Calcutta High Court in Commissioner of Wealth Tax v. Mrs. Dorothy Martin(1). In
that case under the will of the assessee's father the assessee was entitled to
receive for 'her life the annual interest accruing upon her share in the
residuary trust fund. The Wealth Tax Officer included the entire value of the
said share in the assessable wealth of the assessee and subjected -the same to
tax under s. 16(3) of the Wealth Tax Act, 1957. That order was confirmed by the
Assistant Appellate Commissioner but the Tribunal in appeal excluded the same
in the computation of the net wealth of the assessee. On a reference made to
the High Court, it was held that on a construction of the various clauses in
the will, the assessee was entitled to an aliquot share in the general income
of the residuary trust fund and not a fixed sum payable periodically as
"annuity" and, therefore, the value of her share was an asset to be
included in computing his net wealth. These decisions in our view correctly lay
down the legal position. In this view it is not necessary to consider whether
the income receivable by the assessee under those deeds either wholly or in
part is capable of being commuted into a lumpsum grant.
For the reasons mentioned above we agree with
the High Court that payments to be made to the assessee under the three trust
deeds cannot be considered as annuities and hence she is not entitled to the
benefit of s. 2(e)(iv).
This takes us to the question whether the
High Court was right in its view that the value of the assessee's jewellery
should not be taken into consideration in determining her net wealth. The
Tribunal has taken the view and the High Court has agreed with that view that
the jewellery in question are articles intended for the personal use of the
assessee. As mentioned earlier those jewels were valued at Rs. 80,000/-; out of
that amount Wealth tax Officer deducted Rs. 25,000/under s. 5(1)(xv). The
assessee claims that in view of s. 5(1)(viii), the value of those jewels cannot
be included in the computation of her net wealth. Section 5(1)(viii) reads:
"5. (1) Wealth-tax shall not be payable
by the assessee in respect of the following assets, and such assets shall not
be included in the net wealth of the assessee(1) [1970] 2 S.C.R. 19. (2) [1968]
69, I.T.R. 586.
825 (viii) furniture, household utensils,
wearing apparel, provisions and other articles intended for the personal or
household use of the assessee." There is no dispute that the Jewels in
question were intended for the personal use of the assessee; but it is said on
behalf of the revenue that s. 5(1)(viii) does not apply to jewels as those
articles are specifically provided for under s. 5(1)(xv). On the other hand it
is urged on behalf of the asessee that s. 5(1)(xv) deals with jewellery which
are not intended for personal use of the assessee such as heirloom or other
jewellery which are retained as valuable assets or intended for the use of
persons other than the assessee whereas s. 5(1)(viii) takes in only such
jewellery as are intended for personal use of the assessee.
We think the contention advanced on behalf of
the assessee is the correct one. It is well known that the jewellery is widely
used as articles of personal use by the ladies in this country specially by
those belonging to the richer classes. That being so jewellery intended for
the, personal use of the assesses comes within the scope of s. 5(1)(viii).
But the jewellery mentioned in s. 5 (1) (xv)
need not be articles intended for personal use of the assessee. That provision
deals with jewellery in general. The two provisions deal with different classes
of jewellery. That is made further clear by s. 5(1)(xiii) which says that
Wealth Tax shall not be payable by assessee in respect of any drawings,
paintings, photographs, prints and other heirloom not falling within cl. (xii)
and not intended for sale but not including jewellery. If the contention that
the jewellery is exclusively dealt with by s. 5(1)(xv) is correct then there
was no occasion for the legislature to refer to jewellery in s. 5(1)(xiii).
From an analysis of the various provisions in s. 5, it appears to us that
therein there are four provisions dealing With jewellery viz. (1) jewellery
intended for personal use of the assess.
5(1) (viii); (2) jewellery that is heirlooms.
5(1)(xiii);
(3) jewellery in the, possession of any
ruler-s. 5(1)(xiv) and (4) jewellery in generate s. 5(1)(xv). Under s. 5(1)(xv)
as it stood at the relevant time every assessee was entitled deduct a sum of
Rs. 25,000/from out of the value of the jewellery in her possession whether the
same was intended for her personal use or not but under s. 5(1) (viii) the
value of all the jewellery intended for the personal use of the assessee stands
excluded in the computation of the net wealth of an assessee.
For the reasons mentioned above we think the
High Court was right in answering the question relating to the value of the
jewellery in favour of the assessee..
In the result these appeals fail and they are
dismissed-no costs.
V.P.S. Appeals dismissed.
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