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PETITIONER: COMMISSIONER OF WEALTH TAX, RAJASTHAN

       Vs.

RESPONDENT: HER HIGHNESS MAHARANI GAYATRI DEVI OF JAIPUR

DATE OF JUDGMENT14/09/1971

BENCH:

ACT: Wealth  Tax Act (27 of 1957), s. 2(e)(iv)-Assessee  entitled to half share of income of trust fund-Trust fund capable  of being augmented If assessee entitled to annuity or  interest in property assessable to wealth tax.

HEADNOTE: The  trust deed executed by the husband of  the  respondent- assessee  provided  that  the trustees  should  pay  to  the assessee  during her life time 50 per cent of the income  of the  trust  fund.  The settlement was  irrevocable  and  the properties mentioned in the schedule to the trust deed stood transferred to the name of the trustees.  Under the  clauses of  the  deed ,the trust fund was not a fixed  sum  but  was capable of being augmented. On the question whether the assessee-was entitled only to an annuity  within  the meaning of that expression in  s.  2(e) (iv) of the Wealth Tax Act or had an interest in the  corpus of the trust which could be brought to tax under the Wealth- tax Act. HELD:     The intention of the husband was that the assessee should  get 15130 share from out of the income of the  trust fund.   Since neither the trust fund nor the amount  payable to  the  assessee  was a fixed sum, what  the  assessee  was entitled  to was not an annuity but an allquot share in  the income  of the trust fund.  The fact that in the  particular assessment  year there was no change in the trust  fund  was irrelevant because the question whether a particular  income is  an  annuity  or  not does not  depend  upon  the  amount received in a particular year. [712 D-H]  Hence  the assessee had a life interest in the  trust  fund which could be brought to tax under the Wealth-tax Act. [713 A-B] Ahmed  G. H. Ariff & Ors. v. Commissioner of Wealth-tax,  76 I.T.R. 471 and Commissioner of Wealth-tax, Gujarat Arundhati Balkrishna, 77 I.T.R. 505, followed.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2149 of 1968. Appeal from the judgment and order dated January 3, 1967  of the Rajasthan High Court in D. B. Wealth Tax Reference No. 6 of 1963. S.   Mitra, O. P. Malhotra, R. N. Sachthey and B. D. Sharma, for the   appellant. M.   C. Setalvad, H. P. Gupta and B. R. Agarwala, for the respondent. The Judgment of the Court has delivered by Hegde,  J.  This  appeal by certificate arises  out  of  the

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wealth   tax  assessment  of  the  assessee-respondent,   an individual,   for  the  year  1959-60,   the   corresponding valuation date being* March 708 31, 1959.  The assessee is the, wife of Maharaja of  Jaipur. On  September  9, 1953, the Maharaja made  a  settlement  at London.   Under  the deed of settlement,  he  appointed  Sir Harold  Augustus  Warner  as the  trustee  of  the  property detailed  in the deed of settlement.  The settlement  is  an irrevocable one and the properties mentioned in the schedule to  the  trust  deed stood transferred to the  name  of  the trustee.   The trust deed provides that the  trustee  should pay to the assessee during her life time 50 per cent of  the income  of the trust fund.  The question arose  whether  the assessee can be held to have any share in the corpus of  the trust  and whether the same can be brought to tax under  the provisions  of the Wealth Tax Act, 1957 (to  be  hereinafter referred to as the Act).  The Wealth-tax Officer came to the conclusion  that  the  assessee’s  interest  in  U.K.  Trust amounting  to  Rs. 15,75,694/- plus the  income-tax  reserve thereon  Rs. 1,75,401/have to be included in the  assessee’s total wealth.  This decision was confirmed by the  Appellate Assistant  Commissioner in appeal.  Thereafter the  assessee took  up  the  matter in second  appeal  to  the  Income-tax Appellate  Tribunal.   The Tribunal for reasons set  out  in paragraphs  6  to 10, 12 and 13 of its order held  that  the assessee did not get any life interest in the corpus but  it held  that her interest was an interest which was  an  asset under  the Act, but for S. 2 (e) (iv) of the Act.  In  other words,  it  held that the assessee had only a right  to  get annuity from out of the trust fund and as such her right  is exempt from wealth tax in view of s. 2 (e) (iv) of the  Act. In the view it took, the Tribunal considered that it was not necessary  to  ascertain the proper and  correct  method  of valuation of the assessee’s right.  It directed that if  and when  its  conclusion on the interpretation of  the  clauses were set aside, the appeal should be posted again before  it for further hearing for ascertaining the correct method,  of valuation. At  the instance of the Department, the Tribunal stated  the case  and referred the following two questions to  the  High Court of Rajasthan for its opinion.               "(1)  Whether on a proper construction of  the               deed  of  settlement  the  assessee  has   any               interest   in  the  corpus  of  the  deed   of               settlement.               (2)   Whether  in the facts and  circumstances               of  this  case,  the  right  of  the  assessee               derived under the deed of settlement is exempt               from wealth-tax by virtue of the provisions of               sec. 2 (e) (iv) of the Act." A  Division  Bench  of that High Court  answered  the  first question-in  the  negative and the second  question  in  the affirmative  both  against the Department.  The  High  Court held 709               1.    that  the  assessee was  not  given  any               interest in the corpus of the, property.               2.    that  the income that the  assessee  was               receiving on account of the 15/30 parts of the               trust  fund was in the nature of  an  annuity,               and               3.    that  the terms and conditions  relating               to  the assessee’s right to  annuity  preclude               commutation of any portion thereof into a lump

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             sum grant. The only question that arises for decision in this appeal is whether  the  share  of  income to  which  the  assessee  is entitled  to  receive under the trust deed executed  by  her husband  can be considered as annuity within the meaning  of that expression in s. 2 (e) (iv).  If it is considered as an annuity, there is no dispute that the, terms and  conditions relating  to  the  assessee’s  right  relating  to   annuity precluded  commutation of any part thereof into a  lump  sum grant.   Therefore  all that we have to see is  whether  the income received by the assessee was an annuity or an aliquot share in the income arising from the fund.  As seen earlier, the High Court as taken the view that the income in question was  an  annuity.  In arriving at that  conclusion,  it  has referred to various decisions of the English courts as  well as  the  courts  in this country.  But in view  of  the  two recent  decisions of this Court, it is not necessary for  us to examine those decisions. In  Ahmed  G. H. Ariff and Ors. v. Commissioner  of  Wealth- tax(1)  one  of  us  (Grover, J.)  speaking  for  the  Court observed  that  the  right of a beneficiary  to  receive  an aliquot share of the net income of properties comprised in a wakf-alal-aulad  created by a Muslim governed by the  Hanifi school of Mohamedan law is "property" and is covered by  the definition  of "assets" in section 2 (e) of the  Wealth  Tax Act,  1957  and  the capitalised, value  of  that  right  is assessable to wealth tax. In Commissioner of Wealth Tax, Gujarat v. Arundhati Bal- krishna, (2) this Court accepted as correct the  distinction brought  out between an annuity and an aliquot share in  the income  of a fund by Kindersley V. C. in Bignold v. Giles  ( 3) Therein the learned judge stated the law 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               (1) 76, I.T.R. 471.       (2) 77 I.T.R. 505.               (3)   (1859) 4, Drew 345; 113 Revised  Reports               390.               710               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 which contains  only               the word ’tenements’ and’ an annuity, though a               hereditament 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 dividend 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."

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Applying  the  principles laid down in these  decisions,  we have  now  to  see as to what was the nature  of  the  right conferred on the assessee under the trust deed ? The  trust  deed  starts by saying  that  "the  settlor  is, absolutely  entitled  to the investments  specified  in  the Schedule   hereto   (hereinafter   called   "the   Scheduled Property")" and that he is desirous of making an irrevocable settlement of the Scheduled Property for the benefit of  his wife  (the assessee) and his four sons.  One of the  clauses in the deed says that               "the  settlor has accordingly transferred(  or               intends  forthwith to transfer  the  Scheduled               Property  into the name of the Trustee  to  be               held  by  him  upon the trusts  and  with  and               subject   to   the  powers    and   provisions               hereinafter declared and contained  concerning               the same."               "The Scheduled Property and any other  invest-               ments or property which may from time to  time               be transferred to and accepted by the  Trustee               as  additions, to the Scheduled  Property  and               any   other  capital  moneys,  which  may   be               received by the Trustee in respect of the               711               trust   premises  and  the   investments   and               property  for the time being representing  the               same  respectively  are together  called  "the               Trust Fund". From this clause, it is clear that the "Trust Fund" is not a fixed  sum.   It is capable of being  augmented  in  several ways.. At the time of creation of the trust, the only assets mentioned  in  the  schedule to the  trust  deed  was  pound 300,000  31  War Loan.. But as seen earlier  this  fund  was capable of being augmented. Clauses  of the trust deed which are relevant for  our  pre- sent purpose are clauses 2, 3, 4(1) and 7. They read: Clause 2 : The Trustee shall stand possessed of the scheduled  property and any other investments or property which may from time to time  be  transferred  to and accepted  by  the  Trustee  as aforesaid  UPON TRUST that the Trustee may either allow  the same  to  remain actually invested so long  as  the  Trustee thinks  fit  or may at any time or times at  his  discretion sell  call  in or convert into money the same  or  any  part thereof  and  shall at his discretion (but  subject  to  the restriction contained in clause 9 hereof) invest the  moneys produced  thereby and any other capital moneys which may  be received by him in respect of the trust premises in the name or  under  the legal control of the Trustee in or  upon  any investments  hereby authorised with power at his  discretion to  vary or transpose any investments for or into others  of any nature hereby authorised." Clause 3 : The  Trustee shall divide the Trust Fund into  thirty  equal parts and shall stand possessed of such parts and the income thereof  respectively upon the trusts and, with and  subject to  the  powers  and provisions herein  after  declared  and contained concerning the same. Clause 4(1) : THE  TRUSTEE shall stand possessed of fifteen such parts  of the  Trust Fund UPON TRUST to pay the income thereof to  the wife during her life and after her death shall hold the said fifteen such parts of the Trust Fund and the income  thereof Upon  the  same  powers and provisions  as  are  hereinafter declared  and  contained concerning the share in  the  Trust

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Fund  which is hereinafter directed to be held in trust  for the said 712 Maharaj  Kumar  Jagat  Singh  or as  near  thereto  as  cir- cumstances will admit. Clause 7. NOTWITHSTANDING the trusts hereinbefore declared the Trustee if he in his absolute discretion thinks fit may at any  time by writing under his hand declare that the whole or any part of  the  share (whether original or accruing) in  the  Trust Fund  to  the income whereof any Beneficiary shall  then  be entitled  in possession or any property appropriated  in  or towards the satisfaction of such share shall thenceforth  be held IN TRUST for such Beneficiary absolutely and  thereupon the  trusts hereinbefore declared concerning such  share  or the  part thereof or the property to which such  declaration relates 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." From  these  clauses it is clear that the intention  of  the Maharaja  was that the assessee should get a half  share  in the  income of the trust fund.  Neither the trust  fund  was fixed nor the amount payable to the assessee was fixed.  The only thing certain is that she is entitled to a 15/30 shares from out of the income of the trust fund.  That being so, it is evident that what she was entitled to was not an  annuity but an aliquot share in the income of the trust fund. Mr.  Setalvad,  learned Counsel for the  assessee  contended that during the year with which we are concerned, there  was no change in the trust fund and in view of that fact and  as we are considering the liability to pay wealth-tax, we would be  justified in holding that the amount receivable  by  the assessee  in the year concerned was an annuity.  We  see  no force in this contention.  The question whether a particular income  is an annuity or not does not depend on  the  amount received in a particular year.  What we have to see is, what exactly  was the intention of the Maharaja in  creating  the trust.  Did he intend to give the assessee a  pre-determined sum every year or did he intend to give her an aliquot share in  the  income of a fund ? On that question, there  can  be only one answer and that is that he intended to give her  an aliquot  share in the income of the trust fund.   As  income cannot  be  an annuity in one year and an aliquot  share  in another  year.   It cannot change its character  year  after year.   From the facts found, it is clear that the  assessee has a life interest in the trust fund. 713 For  the reasons mentioned above, we allow this appeal,  set aside  the  judgment  of the High Court  and  discharge  the answers given by the High Court to the questions referred to it  by  the  Tribunal  and in  its  place  we  answer  those questions in favour of the Department.  The Commissioner  is entitled to his costs of this appeal from the respondent, V.P.S.                       Appeal allowed. 714