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PETITIONER: COMMISSIONER OF WEALTH TAX, GUJARAT ATAHMEDABAD

       Vs.

RESPONDENT: MRS.  ARUNDHATI BALKRISHNA

DATE OF JUDGMENT: 25/02/1970

BENCH: HEGDE, K.S. BENCH: 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.P- 586, 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  1958- 59,  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

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(1)  (viii) the value of all the jewellery intended for  the personal  use of the assessee stands excluded in the  compu- tation  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]

JUDGMENT: 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

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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

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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-in- law  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 hereditament, is not a tenement;  and               an annuity so given is a base fee."

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             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).

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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.

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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. Sup CI/70-8 826