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PETITIONER: COMMISSIONER OF WEALTH TAX, LUCKNOW

       Vs.

RESPONDENT: P. K. BANERJEE (DEAD) BY LRS.

DATE OF JUDGMENT09/09/1980

BENCH: VENKATARAMIAH, E.S. (J) BENCH: VENKATARAMIAH, E.S. (J) BHAGWATI, P.N.

CITATION:  1981 AIR  401            1981 SCR  (1) 657  1981 SCC  (1)  63  CITATOR INFO :  D          1987 SC 522  (45)

ACT:      Wealth Tax  Act,  1957,  Section  2(e)(iv),  scope  of- Annuity-Nature of  the amount  to fall under the annuity, to claim exemption under the Wealth Tax Act, explained. C

HEADNOTE:      The respondent  assessee, under  a deed  of trust dated October 26,  1937 executed  by his father Pyarey Lal Banerji which was  modified by  another trust  deed dated  April 28, 1950, received "the net income of the trust funds" after the death of  his father. The assessee treated this amount as an annuity and  claimed exemption under section 2(e)(iv) of the Wealth Tax  Act, 1957. The claim for exemption was negatived by all  the authorities  including the  Appellate  Tribunal, Allahabad Bench.  The Tribunal,  however, holding  that  the inclusion  of   the  entire  value  of  the  corpus  in  the computation of  net wealth  was not  correct as the assessee had merely  a life  interest in  it, directed the Wealth Tax Officer to  modify the assessments valuing the life interest of  the  assessee  according  to  recognised  principles  of valuation. On  a reference,  at the instance of the assesee, the High  Court held  the interest  of the  assessee in  the trust fund  amounted to  an  annuity  exempt  under  section (e)(iv) of the Wealth Tax Act. E      Allowing the  appeal by  special  leave  and  answering against the assessee, the Court ^      HELD: (I)  In order  to claim  that an item of property should not be treated as an asset for purposes of the Wealth Tax Act,  by virtue of subclause (iv) of section 2(e)(1), it has to be established (a) that it is an annuity and (b) that commutation of  any portion  thereof into a lumpsum grant is precluded by the terms and conditions thereto. [663 C]      (2) It  is true  that the word "annuity" is not defined in the  Act. 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 or  any ground  relating to  the general  income of the fund or  estate which  is  charged  for  such  payment.  The intention of  the settlor  must be  seen, whether  he wanted

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that the assessee should get a pre-determined sum every year or whether  the assessee  should get the whole net income of the trust fund. [665 C, 671 G]      In the  instant case, since the interest of the settlor was that the whole net income of the trust fund should go to the assessee, the right of the assessee cannot be treated as an annuity.  The fact  that under the trust deed the trustee had been  given the  power to  reinvest the  proceeds of the Government securities  leads to the possibility of variation of the  income and Consequently of the amount to be received by the  assessee. make  it clear that it was not an annuity. The fact  that no  such reinvestment  had taken place during the relevant year is immaterial. [671 H-672 B] 658      Ahmed G.H.  Ariff & Ors. v. Commissioner of Wealth-tax, Calcutta, (1970)  76 I.T.R. 471; Commissioner of Wealth-tax, Gujarat II  v. Mrs.  Arundhati Balkrishna,  (1968) 70 I.T.R. 203, explained and applied.      Commissioner of  Wealth-tax, Rajasthan  v. Her Highness Maharani Gayatri  Devi  of  Jaipur  (1971)  82  I.T.R.  699, followed.      Commissioner of  Wealth-tax, A.P. v. Nawab Fareed Nawaz Jung & ors. (1970) 77 I.T.R. 180, overruled.      In re Duke of Norfolk: Public Trustee v. Inland Revenue Commissioners (1950) Ch 467 distinguished.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal No. 1163 - 1167 of 1973.      Appeal by  Special Leave  from the  Judgment and order, dated 15-3-1971  of the  Allahabad High  Court in Wealth Tax Reference No. 232 of 1964.      S. T. Desai and Miss A. Subhashini for the Appellant.      S. N.  Kacker, V. K. Pandita and E. C. Agarwala for the Respondent.      VENKATARAMIAH, J.-These  appeals by special leave under Article 136  of the  Constitution are  directed against  the judgment, dated  March 15,  1971 of the Allahabad High Court in Wealth Tax Reference No. 232 of 1964.      The facts  of the  case may be briefly stated thus: The Income tax  Appellate Tribunal,  Allahabad Bench,  Allahabad referred under  section 27  (1) of  the Wealth-tax Act, 1957 (hereinafter referred  to as ‘the Act’) to the High Court of Allahabad for  its opinion  the following  question  of  law arising out  of the  assessment orders made under the Act in respect of the assessment years 1957-58 to 1961-62:           Whether the  interest of the assessee in the trust      fund amounted  to an annuity exempt under section 2 (e)      (iv) of the Wealth-tax Act?"      The assessee  concerned in  this case  is  Shri  P.  K. Banerji. Under  a deed  of trust,  dated  October  26,  1937 executed by his father, Shri Pyarey Lal Banerji (hereinafter referred to  as ‘the  settlor’) the assessee became entitled to receive  the income  arising out of the trust fund during his (assessee’s)  life-time after  the death  of the settlor subject to  the liability  to pay out of such income certain specified sums  periodically as mentioned in the deed to two other persons.  After the  death of the assessee, the income of the trust fund was directed to be paid in equal shares to the two  other persons  referred to  above and  if either of them should  die before  the death  of the  asessee then the whole of such income had to be paid 659

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to the  survivor of  them during his or her life. There were certain other  directions in  the trust  deed with regard to the disposal  of the  income arising  out of  the trust fund with which we are not concerned in this case. The trust fund consisted  of   certain  India   Government  loan  bonds  or securities issued  from time  to time  under  which  certain specified interest was payable. The total face value of such bonds amounted  to Rs.  10 lacs. The Imperial Bank of India, Calcutta (hereinafter  referred to  as  ‘the  trustee’)  was appointed as  the trustee  under  the  trust  deed  and  the Government loan  bonds or  securities referred to above were transferred and  endorsed in  favour of  the trustee  with a direction to  discharge the  obligations referred  to in the trust deed.  Under clause (1) of the trust deed, the settlor directed the  trustee to  retain with it the said Government loan bonds  or securities and upon redemption of any of them to invest  the proceeds thereof in the purchase of three and a half  per cent  Government promissory notes (old issue) or if this  was not  practicable in  any other  security of the Government of  India or if this too was not practicable then in any  other securities  authorised for  the investment  of trust funds  by the Indian Trusts Act, 1882 or any statutory modification thereof  and to hold and stand possessed of the Government loan bonds or securities referred to above or any other investments representing the same as the trust fund to be used  in accordance  with the directions contained in the deed. The  following are  the relevant recitals of the trust deed, dated October 26, 1937 containing directions regarding the manner  in which  the income arising from the trust fund should be appropriated or spent:-           "(a) The  Bank shall  pay the  net income  of  the      Trust Fund  to the  settlor during  his  life  and  may      instead of  paying the  same to  him direct, credit the      same to  the current  account of  the settlor  with the      Bank, so  long as  there  shall  be  any  such  current      account.           (b) From  and after  the death of the settlor, the      Bank shall  pay the net income of the trust fund to the      settlor’s son  Pranab Kumar Banerji during his life, if      he should  survive the  settlor subject  to the payment      there out  every six  months on  the thirtieth  day  of      April and  thirty first day of October in every year of      a sum of Rupees Nine hundred to the settlor’s son Sunab      Kumar Banerji  and a  sum of  Rupees six hundred to the      settlor’s daughter-in-law Purnima Banerji during his or      her life, if he or she shall survive the settlor.      (c) If  the said  Pranab Kumar Banerji shall predecease      the settlor  or if  he should die after having survived      the settlor, then 660      in the former case on and from the death of the settlor      and in  the latter  case on  and from  the death of the      said Pranab Kumar Banerji, the income of the trust fund      shall be  paid in  equal shares to the said Sunab Kumar      Banerji and  Purnima Banerji  (if he  or she  should be      then alive) or the whole of such income to the survivor      of them during his or her life.           (d) If  the said Pranab Kumar Banerji, Sunab Kumar      Banerji  and   Purnima  Banerji  shall  predecease  the      settlor or if they or any one or more of them shall die      after having  survived the  settlor then  in the former      case on  and from  the death  of the settlor and in the      latter case  on and  from the  death of the survivor of      the said  Pranab Kumar Banerji, Sunab Kumar Banerji and      Purnima Banerji,  the Bank shall stand possessed of the

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    trust fund  and the  income thereof UPON SUCH TRUSTS as      the said  Pranab Kumar Banerji by any deed or deed with      or without  power of  revocation may appoint or by will      or codicil  shall at  any time  or times appoint AND IN      DEFAULT of and so far as any such appointment shall not      extend IN  TRUST for  the settlor’s  nephew Manoj Kumar      Banerji and  the settlor’s  niece  Jhuni  Banerji  (now      minors), if they are both alive, or such one of the two      as may  be alive  and in default of both for the person      or persons  who under  the law  relating  to  intestate      succession would  on the death of the settlor have been      entitled thereto,  if the  settlor had  died  possessed      thereof and intestate."      In exercise  of the  power  that  he  had  reserved  to himself under  the trust  deed, dated  October 26,  1937  to modify the terms thereof, the settlor executed another trust deed, dated  April 28,  1950 by which clauses (b) and (c) of the trust  deed, dated October 26, 1937 extracted above were substituted by the following clauses:           (b) From  and after  the death  of the settlor the      Bank shall pay the net income of the trust funds to the      settlor’s son  Pranab Kumar  Banerji  during  his  life      time, if he should survive the settlor.           (c)  If   the  said  Pranab  Kumar  Banerji  shall      predecease the  testator or  if  he  should  die  after      having survived  the settlor then in the former case on      and from  the death  of the  settlor and  in the latter      case on  and from  the death  of the  said Pranab Kumar      Banerji, the  income of  the trust funds should be paid      in equal  shares to  my son  Sunab Kumar Banerji and my      daughter-in-law Shakuntala Banerji (if he or she should      be then  alive) or  the whole  of such  income  to  the      survivor of them during his or her life." 661      The name  ’Purnima Banerji’  occurring in clause (d) of the trust  deed, dated  October 26,  1937 was substituted by the name ’Shakuntala Banerji’ by the trust deed, dated April 28, 1950.  The resulting  position was  that the trustee was obliged to  pay the  net income  of the  trust fund  to  the settlor during his life time and after his death the trustee had to  pay the net income of the trust fund to the assessee during his  life time  if he  should survive the settlor. If the assessee should pre-decease the settlor then on and from the death  of the  settlor and  if the  assessee should  die after the settlor on and from the death of the assessee, the income of  the trust  fund had to be paid in equal shares to Sunab Kumar  Banerji, the  other  son  of  the  settlor  and Shakuntala Banerji,  the daugther-in-law  of the settlor (if he or she should be then alive) and the whole of such income had to  be paid  to the  survivor of  them during his or her life. We  are concerned  in this  case principally  with the character of the benefit conferred on the assessee by clause (b) of the trust deed as substituted by the trust deed dated April 28,  1950. The settlor died sometime in 1952 and since then the  assessee was  receiving the  net income  from  the trust fund  in accordance  with the  said clause as the sole beneficiary.      During  the   assessment  proceedings   under  the  Act relating to  the assessment  years in question, the assessee contended before  the  Wealth-tax  Officer,  Allahabad  that since the corpus of the trust fund was vested in the trustee and not  in him,  the value  of the trust fund should not be included in his total wealth and that in any event as he had only the  right to  receive an annuity under the trust deed, the trust fund should not be taken into account by reason of

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section 2  (e) (iv)  of  the  Act.  The  Wealth-tax  Officer rejected the  contentions of  the assessee  and included the full market  value of  the trust fund in the total wealth of the assessee  in all  the five  assessment orders  passed by him. The  appeals filed by the assessee before the Appellate Assistant  Commissioner   of  Wealth-tax,   Allahabad   were dismissed.  On  further  appeal,  the  Income-tax  Appellate Tribunal, Allahabad  Bench, Allahabad  confirmed the  orders passed by the Wealth-tax Officer and the Appellate Assistant Commissioner of Wealth-tax in so far as the question of non- applicability of section 2 (e) (iv) of the Act was concerned but it  held that  the inclusion  of the entire value of the corpus in  the computation  of net wealth was not correct as the assessee  had merely  a life interest in it. Accordingly it directed the Wealth-tax Officer to modify the assessments valuing the  life interest  of  the  assessee  according  to recognised  principal   of  valuation.   Thereafter  at  the instance of  the assessee the common question of law set out above was referred to the High 662 Court of  Allahabad under section 27 (1) of the Act. All the five references  relating to  the five assessment years were heard together by the High Court in the year 1970. Since the High Court  was of  the view that it was necessary to direct the Income-tax  Appellate Tribunal to submit a supplementary statement of the case on the following questions:           "(1) Whether the  right of the assessee to receive      the amounts in terms of the deeds of trust, referred to      above is  an annuity"  within the  meaning of section 2      (e) (iv) of the Act?           (2)  if  so,  whether  the  terms  and  conditions      relating to  such annuity  preclude the  commutation of      any portion thereof into a lump sum grant?" it directed  the Tribunal  by its  order, dated February 27, 1970 to  submit a supplementary statement of the case on the above questions.  In accordance  with the  directions of the High Court, the Tribunal submitted a supplementary statement of the  case in  August, 1970  stating  that  the  asset  in question was  not an  annuity referred  to in  section 2 (e) (iv) of  the Act.  The cases  were there  after heard by the High Court.  By its judgment, dated March 15, 1971, the High Court answered  the common question of law referred to it in the affirmative  in favour of the assessee, holding that the interest of  the assessee  in the  trust fund amounted to an annuity  exempt  under  section  2  (e)  (iv)  of  the  Act. Dissatisfied with  the  judgment  of  the  High  Court,  the Department has come up in appeal to this Court.      There  is  no  dispute  that  in  the  case  of  assets chargeable to  tax under the Act which are held by a trustee under  a   duly  executed   instrument  in  writing  whether testamentary or otherwise, wealth tax can be directly levied upon and  is recoverable from the person on whose behalf the assets are  held. Section  3 of  the Act  creates  the  said charge in  respect of  the net  wealth on  the corresponding valuation date  of every  individual, Hindu undivided family and Company  at the rate or rates specified in Schedule I to the Act.  ’Net wealth’ according to section 2 (m) of the Act means the  amount by  which the  aggregate value computed in accordance with the provisions of the Act of all the assets, wherever located, belonging to the assessee on the valuation date, including  assets required  to be  included in his net wealth as  on that  date under  the Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation  date  other  than  those  debts  referred  to  in subclauses (i)  to (iii)  thereof. In  section 2  (e) of the

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Act,  the   expression  "assets"  is  defined  as  including property of every description, 663 movable or  immovable but  not including  in relation to the assessment year  commencing on  the 1st  April, 1969  or any earlier assessment  year those  items which are mentioned in sub-clauses (i) to (v) of section 2 (e) (1). Sub-clause (iv) of section  2 (e)  (1) of  the Act which is relevant for the purpose of  this case  excludes from  the definition  of the word ’assets’  a right  to an  annuity in any case where the terms  and   conditions  relating   thereto   preclude   the commutation of any portion thereof into a lump sum grant. In order to  claim that  an item  of  property  should  not  be treated as  an asset  for purposes  of the  Act by virtue of sub-clause  (iv)  of  section  2  (e)  (1),  it  has  to  be established  (i)  that  it  is  an  annuity  and  (ii)  that commutation of  any portion thereof into a lump sum grant is precluded by the terms and conditions relating thereto.      The property  in question  is the right of the assessee to receive  the net  income of  the trust  funds during  his life-time. The  primary facts that emerge from the orders of the Tribunal  are (1) that under the trust deed, the settlor intended that  after the settlor’s death, the assesee should be the  sole beneficiary  of the  net income  from the trust fund during his (assessee’s) life-time (2) that the assessee had been treating himself as the owner of the trust fund for purposes of income tax payable by him and had been declaring the income  of the  trust as  his own income and claiming in his own  income-tax returns deduction for tax paid at source by the  trust; (3)  that in  fact the  assessee was the sole beneficiary of  the net  income derived from trust fund; (4) that he had under the trust deed the right of appointment of his successors  under certain circumstances and (5) that the trustees had  the  power  to  invest  the  proceeds  of  the Government loan  bonds or  securities which  constituted the trust fund upon their redemption as provided in the deed and that therefore the net income realisable from the trust fund was subject to variation. One of the significant features of the trust  deed, dated  October 26,  1937 is  that what  was payable to  the assessee  was not  a periodical payment of a definite predetermined  sum of money but only the net income of the trust funds, although it was possible to predicate at any given  point of  time such  income with  some  certainty having regard to the fact that the trust fund in the instant case consisted  of Government  loan bonds or securities, the proceeds of  which on  redemption were liable to be invested in other  securities as  indicated in  the trust deed, dated October 26, 1937.      The principal  reason given by the High Court to arrive at the  conclusion that  the property  in  question  was  an annuity is set out in its judgment thus: 664      "In the  case before  us the property settled under the trust deed  consists of  Government securities,  and  it  is apparent from  the schedule  appended to  the deed that they bear interest  at a  fixed and determined rates. The settlor conferred  upon   the  trustee   the  power  to  redeem  the government securities  and to  invest the  proceeds  in  the purchase of  3 1/2%  Government promissory notes (old issue) or in  any other  securities of  the Government of India, or that  if   that  was  not  practicable  then  in  any  other securities authorised  for the  investment of the trust fund by the  Indian Trusts  Act. There  is nothing  on the record before us  to show  that the  original securities comprising the trust  property were converted or replaced by securities

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not bearing  a fixed  rate of interest and returning a fixed and definite  income. Proceeding,  therefore, on  the  basis that a  definite  and  certain  income  is  yielded  by  the securities, we  have no  hesitation in holding that what the assessee received was an amount which did not depend upon or was related to the general income of the estate in the sense that it  fluctuated with a fluctuating income. Having regard to the  character and  nature of  the property settled under the trust,  no question  arises of  a rise  or fall  in  the amount  of  income  produced  by  the  trust  property  and, therefore, in  a real sense what the assessee is entitled to is a  definite and  certain sum.  Also, having regard to the terms of  the trust  deed it is not possible to say that the interest of  the assessee  constitutes an  interest  in  the capital of  the trust  fund. Therefore,  upon the  test laid down by  Jenkins L.  J. in  Duke of  Norfolk: In  re: Public Trustee v.  Inland Revenue Commissioner (1950) 1 Ch. 467, it cannot be  described as a life interest. We are fortified in the  view  we  are  taking  by  the  decision,  on  somewhat comparable  faces  of  the  Andhra  Pradesh  High  Court  in Commissioner of  Wealth-tax v.  Nawab Fareed  Nawaz  Jung  & Ors., (1970) 77 I.T.R. 180.      It is  true that  the assessee  is entitled  to the net income only  and that  because the  trustee has the right to deduct from  the gross  income its  remuneration, its annual income fee  and the  expenses in  managing the trust estate, the net income may vary from year to year. Yet even here the remuneration and the annual income fee can be charged by the trustee at  a fixed  rate only, and any variation in the net income may  be attributed  to the varying expenses from year to year  in managing  the  trust  estate.  We  have  already pointed out  that freedom  from variation is not an absolute test determining  the character  of an  annuity. We  are  of opinion that where it varies merely because 665      of the  charges and  expenses payable on account of the      administration of  the  trust  it  does  not  lose  its      character as an annuity.           Upon the  aforesaid consideration,  it seems to us      that the  right of  the assessee to the net income from      the  trust   property  under  the  trust  deed  can  be      described in law as a right to an annuity."      The High  Court appears  to have felt that the facts of the case  were distinguishable from the facts in Ahmed G. H. Ariff &  Ors. v.  Commissioner of Wealth-tax Calcutta(1) and the facts  in Commissioner of Wealth-tax, Gujarat II v. Mrs. Arundhati Balkrishna(2).  We shall presently deal with these two cases.      The word ’annuity’ is not defined in the Act. In one of the earliest legal compilations of the English law, the term ’annuity’ has  been explained  as an  yearly  payment  of  a certain sum  of money  granted to another in fee or for life or for  a term  of years  either payable  under  a  personal obligation  of   the  grantor   or  charged  upon  his  pure personality, although  it may  be made  a  charge  upon  his freehold or  leasehold lend  in  which  latter  case  it  is commonly called  a  rent-charge  (See  Co.  Litt  144b).  In Halsbury’s Laws of England, Third Edition (Vol. 32, page 534 para 899),  the meaning of the said expression is given as a certain sum  of money  payable yearly  either as  a personal obligation of  the grantor or out of property not consisting exclusively of land; it differs from a rent-charge in that a rent-charge issues  out of  land. In  Bignold  v.  Giles.(3) ’annuity’ is described thus:           "An annuity is a right to receive de anno in annum

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    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; 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." 666 It is further observed in the above decision thus:           "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".      The three  illustrations given under section 173 of the Indian  Succession   Act,  1925  dealing  with  bequests  of annuities also refer to the payment of certain definite sums periodically and they do not refer to periodical payments of income arising out of any trust fund.      It is against this background that this Court proceeded to decide  the case  of Ahmed  G. H.  Ariff (supra). In that case, the  Court was  called upon  to determine  whether the benefits conferred on the appellants under a deed creating a wakf-alal-aulad were  annuities or not. The relevant part of the deed,  which declared  that the  ultimate benefit in the case of complete intestacy of the descendants of the settlor was reserved for poor Musalmans of Sunni community deserving help, read thus:           "After payment  of all necessary outgoings such as      establishment  charges,  collections  charges,  revenue      taxes, costs of repairs, law charges and other expenses      for  the   upkeep  and  management  of  the  said  wakf      property, the  mutawalli or  mutawallis shall apply the      net income of the said wakf property as follows, viz.:                (a) in  payment to  me during  the term of my           life of  one-fifth  of  the  said  net  income  by           monthly instalments;                (b) in  payment to each of my sons during the           respective terms  of their  lives one-sixth of the           said net income by monthly instalments;                (c) in payment to my wife, Aisha Bibi, during           the term  of her  life one-tenth  of the  said net           income by monthly instalments.           The moneys payable as aforesaid to such of my sons      as are  minors shall  until  they  attain  the  age  of      majority be  respectively invested (after defraying the      expenses of  their maintenance and education) in proper      securities or  in landed  property in Calcutta and such      securities or property shall be 667      made over  to  the  said  sons  on  their  respectively      attaining the age of majority."      This Court  held that  the right  of the beneficiary to receive an aliquot share of the net income of the properties

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was an  asset covered  by the  definition of section 2(e) of the Act  and not  a mere ’annuity’ and affirmed the decision of  the  Calcutta  High  Court  in  Ahmed  G.  H.  Ariff  v. Commissioner of Wealth Tax Calcutta.(1)      In the  case of  Mrs. Arundhati  Balkrishna (supra)  to which one of us was a party, under two trusts created by the father of  the assessee and one trust created by her mother- in-law, she  was to  be paid annually the net income of each of  the   trusts  after  deducting  costs  and  expenses  of administration of  the trust. Under the terms of the trusts, after the life time of the assessee, the corpus of the trust in each case had to be dealt with as provided in them. Since the assessee was entitled to the whole residue of the income from the  trust funds  available after defraying expenses of the trust  and not  any specified  or pre-determined amount, the High  Court of  Gujarat  held  that  the  right  of  the assessee under  each of  the trust  deeds was not an annuity but only  amounted to  a life  interest. The decision of the High Court  of Gujarat  was later  affirmed by this Court in Commissioner   of    Wealth-tax,   Gujarat    v.   Arundhati Balkrishna(2) in which it was observed thus:           "On an  analysis of  the relevant  clauses in  the      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 (1966) 59 I.T.R.      230 (Cal.), a Division Bench of the Calcutta High Court      held that the right of a person to receive under a wakf      an aliquot 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 v. Commissioner of Wealth-tax (1970)      76 I.T.R.  471 (S.C.)  Civil Appeals  Nos. 2129-2132 of      1968 decided on 668      August 20,  1969) 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  (1968) 69  I.T.R. 586  (Cal.). 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 section  16 (3)  of the  Wealth-tax,  1957.  That      order  was   confirmed  by   the  Appellate   Assistant      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

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    income receivable  by the  assessee under  those deeds,      either wholly  or in part, is capable of being commuted      into a lump sum 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      benefits of section 2(e) (iv)."      It is,  however, contended on behalf of the assessee in this case  that since the trust fund consisted of Government securities which were yielding definite annual income by way of interest and there was no evidence of the said securities having been  converted into other securities yielding higher or lower  income, it  should be  assumed  that  the  benefit conferred on  the assesee  was only  an ’annuity’  and not a life interest.  This contention  has to  be rejected for the very reason  for which  a similar contention was rejected by this Court  in Commissioner  of Wealth-tax, Rajasthan v. Her Highness Maharani Gayatri Devi of Jaipur(1) in the following words:           "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 share from out 669      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. An income cannot      be 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      life interest in the trust fund."      The decision  of the  High Court  of Andhra  Pradesh in Commissioner of Wealth-tax, A. P. v. Nawab Fareed Nawaz Jung  &Ors.(1) on which the High Court has relied in this case to the extent  it takes  a contrary  view must  be held  to  be incorrect.      We may  now to  consider the  decision in In re Duke of Norfolk: Public Trustee v. Inland Revenue Commissioner(2) on which the  High Court  relied heavily  in  arriving  at  its conclusion. The  point which  arose for consideration in the above case was whether, where one continuing annuity for two or more lives was given to two or more persons in succession and charged  on property,  on the  death of  any  annuitant, other than  the last  to die,  estate duly was payable under

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section 1  of the  Finance Act,  1894 on the footing that it was the  annuity which  passed on the annuitant’s death. The estate duty  authorities claimed estate duty on the death of an annuitant,  who was not the last of the annuitants to die on the slice of the capital required to produce the annuity, on the  footing that  as  annuitant,  the  deceased  had  an interest on  the capital  charged with  the annuity and that cesser of that interest gave rise to a benefit taxable under 670 section  2(1)(b)  of  the  Finance  Act,  1894.  The  Public Trustee, in whom the estate vested, claimed that estate duty became payable  on the value of a continuing annuity for the life of  the annuitant  who succeeded  to the annuity on the death of  the deceased  annitant. Jenkins L.J. in the course of his  judgment in  the above case explained the difference between an annuity and a life interest thus:           "An annuity  charged on property is not, nor is it      in any  way equivalent  to, an interest in a proportion      of the  capital of  the property  charged sufficient to      produce its  yearly amount.  It is nothing more or less      than a  right to  receive the stipulated yearly sum out      of the income of the whole of the property charged (and      in many  cases out  of the  capital in  the event  of a      deficiency of  income). It  confers no  interest in any      particular part  of the  property charged, but simply a      security extending  over the  whole. The  annuitant  is      entitled to  receive no  less  and  no  more  than  the      stipulated sum. He neither gains by a rise nor loses by      a  fall  in  the  amount  of  income  produced  by  the      property, except in so far as there may be a deficiency      of income  in a  case in  which recourse  to capital is      excluded.           On the  other hand,  a life interest in a share of      the income  of property  is equivalent  to  and  indeed      constitutes, a  life  interest  in  the  share  of  the      capital corresponding  to the share of income. The life      tenant enjoys  the share  of  income  whatever  it  may      amount to,  and his interest, viewed as a life interest      in capital,  consists of  a constant  proportion of the      whole property,  whether the  income is great or small,      and whether  the capital value of the property rises or      falls. The  property which  changes hands  on his death      (or in  other words  passed under  s. 1)  thus  clearly      consists of the designated share of capital, which then      passes  from   his  beneficial  enjoyment  to  that  of      another, an  annuity cannot  be so related to any fixed      proportion of  capital: See  De Trafford  v.  Attorney-      General (1935) A. C. 280."      Evershed M. R. who delivered a separate judgment agreed with the observation and stated thus:           "In the  case of  one who has enjoyed for his life      (say) one  fourth of  the income of an estate, it seems      to me in accordance with common sense and a natural use      of language  to say  that he enjoyed for his life, that      he was  life tenant of, a fourth part of the (corpus of      the) estate;  and, accordingly,  that upon  his death a      fourth part of the estate passed to the next successor.      But no such language can, in my judgment, appropriately      be used  in the  case of  an annuitant. He is in no way      concerned 671      with changes  in the  yield of the estate; his right to      his annuity  will continue  whatever income  the estate      may produce  or (unless  he has  a right to look income      only) though the estate produce no income at all."

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    The learned Master of the Rolls distinguished the cases of In  re Northcliffe(1)  and Christie  v. Lord  Advocate(2) from the case before him thus:           "Both the  two last-mentioned cases were instances      of dispositions of aliquot shares of the general income      of an  estate to  be enjoyed in succession, as distinct      from an  annuity or  yearly  sum,  which,  even  though      variable (as  in the  case of In re Cassel (1927) 2 Ch.      275) is  in no  way dependent  upon or  related to  the      general income of the estate."      Accordingly the  contention of  the Crown was rejected. On going  through the  above decision  carefully, we  do not find any  support for  the contention urged on behalf of the assessee in the present case. The decision is quite clear on the point that when the payment is dependent upon the income of the  corpus, it  cannot be  called an annuity and that an annuity even  though it may be variable as in the case of In re Cassel(3)  can in  no way be dependent upon or related to the general  income of  the  estate.  The  High  Court  was, therefore in  error in  relying upon the decision in Duke of Norfolk: In  re. Public  Trustee (supra)  for  holding  that notwithstanding  the   existence  of   the  possibility   of variation in the payment to be made in the above case to the assessee depending  upon the  income of the fresh securities to be  acquired by  the trustee  on the redemption of any of the securities  transferred at  the time of the execution of the trust deed, the payment would amount to an annuity.      On a consideration of the decisions cited before us, we feel that  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 or  on any ground relating to the general income of the fund or  estate which  is charged  for such  payment. In the instant case,  as observed  in  the  case  of  Her  Highness Maharani Gayatri  Devi of Jaipur (supra) what we have to see is the  intention of the settlor, whether he wanted that the assessee should  get a  pre-determined  sum  every  year  or whether the assessee 672 should get the whole net income of the trust fund. Since the intention of  the settlor  was indisputably  the latter one, the right  of the  assessee cannot be treated as an annuity. An additional factor which requires us to take the same view is that under the trust deed the trustees had been given the power to  reinvest the proceeds of the Government securities which leads  to the  possibility of  variation of the income and consequently  of  the  amount  to  be  received  by  the assessee. The fact that no such reinvestment had taken place during the relevant years is immaterial.      In view  of the foregoing, the appeals are allowed, the judgment of  the High  Court is  set aside  and the question referred to the High Court under section 27(1) of the Act is answered in  the negative  and against  the assessee. In the circumstances of  the case, the assessee shall pay the costs of the Department. (Hearing fee one set).                                              Appeal allowed. V.D.K. 673