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PETITIONER: COMMISSIONER OF WEALTH TAX, PUNJAB, J & K, CHANDIGARH, PATIA

       Vs.

RESPONDENT: YUVRAJ AMRINDER SINGH ETC.

DATE OF JUDGMENT08/10/1985

BENCH: TULZAPURKAR, V.D. BENCH: TULZAPURKAR, V.D. MUKHARJI, SABYASACHI (J)

CITATION:  1986 AIR  959            1985 SCR  Supl. (3) 565  1985 SCC  (4) 608        1985 SCALE  (2)687

ACT:      Wealth Tax  Act, 1957,  ss. 5 (1) (vi) and 2 (e) (iv) - "Any policy  of insurance"  - Interpretation of - Computable annuities dependent  on human  life -  Whether  exempt  from wealth tax.      Insurance Act,  1938,  8.  2  (11)  -  "Life  insurance business" -  Contract of insurance based on human life - How effected.      Interpretation of statute - Proviso - Effect of.

HEADNOTE:      The two  assessees are  individually assessed to wealth tax under  the Wealth  Tax Act, 1957. They had purchased one annuity policy  each, and  claimed exemption  of  the  value thereof under  8. 5  (1) (vi)  of the Act, alleging that the annuity policies  fell within  the expression "any policy of insurance" occurring in that provision.      The Wealth  Tax Officer rejected the claim and included the value  of the  annuity policies  in the  assessees’  net wealth on  the ground  that the exemption was allowable only to insurance  policy whereas  the policy  taken out  by  the assessee was  an annuity  policy whereunder the assessee had made lumpsum  payment and  he would  be  getting  periodical returns after  the lapse  of a  number of  years and as such annuity policy could not be considered as insurance policy.      The  Appellate   Assistant  Commissioner   allowed  the assessees’ appeals  holding that  the annuity  policies were covered  by   the  term   "any  policy  of  insurance"  and, therefore, they  were entitled  to exemption  under s. 5 (1) (vi).      This view  was confirmed  by the  Appellate Tribunal in appeals and in Reference by the High Court.      In the  appeals by  the Revenue  to this  Court it  was contended: (1) that a contract for deferred annuity is quite 566 distinct from  a "policy  of insurance"; an annuity contract is operative  from the  date  on  which  annuity  vests  and thereafter there  is no element of insurance in the contract covering the  risk of  human life and, therefore, a contract for deferred  annuity cannot  be  treated  as  a  policy  of insurance and  the value thereof would not be exempted under s. 5 (1) (vi) of the Act; (2) that the ambit or scope of the

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expression "any insurance policy" occurring in s. 5 (1) (vi) should be  confined to  the usual life policies or endowment policies; (3)  that the  proviso to sub-clause (vi) suggests that the legislature intended to confine the expression "any insurance policy"  to the exclusion of annuities on life and that since  non-commutable annuities only have been excluded from the  definition of  ’assets’ given  in s.  2  (e),  the legislature could  not have  intended  to  exempt  annuities based on  human life  under s.  5 (1)  (vi) by bringing them within the expression "any policy of insurance" and (4) that it would  be incongruous  for  the  legislature  to  include commutable annuities  on life  within the  expression assets under s.  2 (e)  on the  one hand  and at  the same  time to exempt such  annuities from the charge including them within the expression  "any policy  of   insurance" under  s. 5 (1) (vi).      Dismissing the Appeals, ^      HELD: 1. Commutable annuities on life, like the ones in the instant  case, would fall under 8.5(1)(vi) of the Wealth Tax Act  1957 and  the value  thereof would  qualify for the exemption from the charge. [581 D]      2. The  exemption  contemplated  by  6.5(1)(vi)  covers interests of  an assessee in all types of insurance policies and  the  expression"  any  policy  of  insurance"  in  that provision would fortiori attract within its ambit or scope a deferred annuity  policy based  on human  life, it  being  a species of  life insurance  policies and,  therefore, unless there is some warrant to cut down the ambit or scope of that expression, the  right of  interest of an assessee in such a policy would  be exempt from the charge of wealth tax unless my moneys  thereunder have  become due  and payable  to  the assessee on the valuation date. [577 E-G]      3. The definition of "life insurance business" as given in s.2(11)  of Insurance  Act, 1938  clearly includes  by  a teeming provision,  the business  of granting  of  annuities upon  human  life  within  the  expression  "life  insurance business". [575 F]      4. A  contract of  insurance based on human life can be effected in two ways, (a) the insurer, in consideration of 567 payment of  periodical premia,  undertakes to pay the person for   whose benefit  the  insurance  is  made  a  stipulated lumpsum upon  the death  of the person whose life is insured or the  happening of any contingency dependent on human life (e.g. usual life policies or endowment policies) and (b) the insurer, in  consideration of payment of a gross sum premium undertakes to pay the person for whose benefit the insurance is  made   annuity  equivalent  (either  annual  or  monthly instalments) after  a certain  age on  the  happening  of  a contingency depending  upon the duration of human life (e.g. deferred annuity  policies). In  either case it is insurance against the  risk of  penury and  as such  is a  contract of insurance. [574 D-F]      In the instant case, each annuity policy stipulate that the monthly payments are guaranteed for a period of 35 years commencing from  22.1.1984 even  if the  death occurs before the expiry  of the  period but  in case  the annuitant lives beyond the  period of  35 years  the monthly  payments shall continue to be made till he dies . Thus the annuity policies evidence a  contract of insurance covering the risk of human life and  as such  would fall with in the expression "policy of insurance"  occurring in s.5 (1) (vi) of the Act. [576 D- f]      C.I.T. v.  General Family  Pension Fund, (1952) 22 Com.

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Cas 89, approved.      Chandulal Harjiwandas  v. Commissioner  of Income  Tax, Gujrat, 63  ITR 627,  Halsbury’s  Laws  of  England,  Fourth Edition,  Vol.  25,  p.  13  and  Bouvier’s  Law  Dictionary (Rawle’s Third Revision) Vol. 2, p. 1619, relied on. 5.   The  object   of  the   provision  in   s.  5   is  the encouragement of  thrift which  element is  present in  both types of  life insurance.  The  provision  should  hence  be interpreted as  not to  nullify that  object. Moreover, s. 5 deals with  exemptions in  respect of certain assets and one of such  exempted assets under sub-cl. (vi) in any policy of insurance before the monies covered by the policy become due and payable  to the assessee". While granting this exemption the legislature  has used  the  expression  "any  policy  of insurance" which  is of  very wide  import. The exemption is not confined  to  rights  or  interests  in  life  insurance policies alone,  but extends  the rights  or interests of an assessee in  other types of insurance policies also, such as a marine or life insurance policy etc. [577 A-C] 568 6.   The proviso  to sub-cl.  (vi) has the effect of cutting down   the exemption  contained in  the sub-clause  to  some extent. The  main provision  creates an exemption in respect of the  assessee’s "right  or  interest  in  any  policy  of insurance" and  the proviso seeks to cut down that exemption to a  limited extent,  namely, whenever there is a policy of insurance in  respect whereof  periodical premia are payable for a  duration of  less than 10 years then in such a case a proportionate Exemption  specified therein will be available to the  assessee irrespective  of what type of policy it is; the proviso has no other effect. That such was the object or purpose of  inserting the proviso will be clear if regard is had to  the Notes  on Clauses  accompanying the Bill and the speech of  the Finance  Minister while introducing the Bill. There 18  therefore, no warrant to put a narrow construction on the  expression "any  policy of  insurance" occurring  in sub-cl. (vi) of 8. 5 (1). [578 C; 579 A-C; 579 E] 7.   The definition of ’assets’ in 8. 2 (e) of the Act is in two parts;  the  first  part  defines  assets  as  including property of  every description  moveable or immovable, while the second  part excludes  certain items  of  property  from falling within  the  expression ’assets’ and one of the item coming within  this esclusionary  part 18:  "(iv) a right to any annuity  in any  case where  the  terms  and  conditions relating thereto  preclude the  commutation of  any  portion thereof into  a lumpsum  grant".  This  excludes  only  non- commutable annuities  from ’assets’. Clause (lv) of 8- 2 (e) does not  exhaustively deal  with all type of annuities. Two types of  annuities are  separately and  specifically  dealt with under  8. 5  (i) (vi-a)  and 5 (i) (vii). Section 2 (e) defines ’assets’  to include  property of  every description movable  or  immovable  excluding  certain  items  from  the purview of  the charge by excluding them from the definition of ’assets’; while 8. 5 (1) (vi) exempts certain assets from the tax  by declaring  that tax will not be payable on them. in order  to be covered by the exemption under 8. 5 (1) (vi) a property must in the first instance be an asset under 8. 2 (e). The  question of  exempting commutable annuity policies of insurance  arises  only  because  they  fall  within  the definition of  ’assets’. It  is,  therefore,  fallacious  to contend that because commutable annuity policies fall within ’assets’ they  should not  be exempted  under 8. 5 (1) (vi). [579 - ; 580 A - H] 8.   A reading of 8. 2 (e) together with 8. 5 (1) (vi-a) and 5 (1)  (vil) negates the view that legislative intention was

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to deal  exhaustively with  annuities under s. 2 (e) (iv). A commutable 569 life annuity  received from an employer would undoubtedly be exempt from  the charge  of wealth-tax under 8- 5 (1) (vil)- If 8.  2 (e)  16 construed as confining, by implication, the exemption from wealth tax to non-commutable annuities alone, then there  would be  an obvious  conflict between  8. 5 (1) (vii) and  8. 2 (e). Therefore, a harmonious reading of 8. 2 (e) (iv) with 8. 5 (1) (vi) and 8. 5 (1) (vii) would be that while non-c  . mutable  p annuities  are wholly  outside the purview of  the wealth  tax,  non-commutable  annuities  are exempt under  8. 5  (1) (vi)  and 5  (1)(vii) to the limited extent mentioned in each. [581 A-C]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeals Nos. 797- 799 (NT) of 1974.      From the  Judgment and  Order dated  30.4.1973  of  the Punjab and  Haryana High  Court in Wealth Tax Reference Nos. 2, 3 and 4 of 1972.      B.B. Ahuja and Miss A. Subhashini for the Appellant.      Harish Salve,  P.K.. Ram  and Mrs  A.K. Verma  for  the Respondents.      The Judgment of the Court was delivered by      TULZAPURKAR, J.  The common question of law that arises for our determination in these appeals 16:           Whether on  the facts  and in the circumstances of           the case,  the right or interest of an assessee in           an annuity  policy is exempt from wealth tax under           8. 5 (1) (vi) of the Wealth Tax Act, 1957?      The facts  giving rise  to  the  question  are  briefly these. Yuvraj  Arminder Singh  and Princess  Rupinder Kumari are individual  assessees being assessed to wealth tax under the Wealth  Tax Act,  1957 (hereinafter  called the Act). As regards the  former the two assessment years are 1964-65 and 1965-66 for  which the  respective valuation dates 31.3.1964 and 31.3.1965,  whereas the  assessment year  in the case of Princess Rupinder  Kumari is 1965-66 for which the valuation date 18  31.3.1965. The  two  assessees  had  purchased  one annuity policy each and they claimed exemption in respect of the value  of each policy in each one’s assessment to wealth tax under 8. 5 (1) (vi) of the Act. The value of the annuity policy in the case of Yuvraj Amrinder Singh was Rs. 2,13,000 while in 570 the case  of Princess  Rupinder Kumari  lt was Rs. 2,35,176. Exemption in  respect of  such value  was claimed under 8. 5 (1) (vi)  of the  Act inasmuch  as the annuity policies fell within the  expression"   any policy of insurance" occurring in the said provision.      The Wealth  Tax Officer rejected the claim and included the above mentioned amounts in the assessees’ net wealth for the concerned  assessment  years  on  the  ground  that  the exemption was allowable only to insurance policy whereas the policy taken  out by  the assessee  was  an  annuity  policy whereunder the  assessee had  made lumpsum  payment  and  he would be  getting periodical  returns after  the lapse  of a number of  years and  as such  annuity policy  could not  be considered as  insurance policy.  Aggrieved  by  the  orders passed by  the Wealth  Tax Officer  the assessees  preferred appeals to  the Appellate Assistant Commissioner who allowed their appeals holding them to be entitled to exemption under

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s. 5  (1) (vi)  as according  to him  annuity policies  were covered by  the term  "any policy  of insurance" used in the said sub-section.  This  view  of  the  Appellate  Assistant Commissioner was  confirmed  by  the  Income  Tax  Appellate Tribunal in  appeals preferred  by the Revenue. In the three Wealth Tax References nos. 2, 3 & 4 of 1972 made to the High Court by  the Tribunal  at the  instance of  the Revenue the High Court  confirmed the  Tribunal’s view  and Answered the question set  out above  (which arose  in each Reference) in favour of  the assessee.  The revenue has come up in appeals challenging the view taken by the High Court.      Since the question raised in these appeals concerns the proper  construction   of  the  expression  ’any  policy  of insurance’ occurring  in s.  5 (l)(vi)  of the Act read with the other  connected provisions  thereof in  relation to the terms of the annuity policies purchased by the two assessees it will be desirable to set out the terms of the two annuity policies. In  each the  annuitant is  the proposer  and each contains provisions for commutation, that is to say, neither is a  non-commutable policy. It may be stated that the terms and conditions of both the annuity policies are the same and hence the  terms and  conditions of  one (of Yuvraj Amrinder Singh) may be set out which are as follows:      "Type of Annuity:   Deferred annuity without profits                          guaranteed for 35 years.      Date on which the:  Twenty-second day of January,      annuity vests:      Nineteen Hundred and sixty four. 571      Even on the         On expiry of 35 years calculated      happening of which  from the date on which the annuity      annuity ceases or   vests or at the death of annuitant,      determines:         if later.      To whom annuity     To the annuitant      payable:      Dates when annuity  On the stipulated due date of the      payable             1st Annuity instalment and monthly                          thereafter.      Special provisions:      (1) If the annuitant shall die before the date on which      the annuity  vests, the  amount of  the single  premium      paid but  without any interest shall be returned to the      proposer or  in case  he shall  be  then  dead  to  his      Proving Executors  or  Administrators  or  other  legal      representatives who  should take  our representation to      his Estate  or limited to the moneys payable under this      policy from  any Court of any State or Territory of the      Union of  India, or  in case the Annuitant (provided he      18 also  the proposer) shall have appointed any nominee      to receive  such money  or executed  any assignment  in      favour of any assignee to such nominee or assignee.      (2) In  lieu of  the payment  of the annuity under this      policy the  proposer has  the option  to  be  exercised      before the date on which the annuity vests to receive 8      cash payment of RS. 2,88,184 on 22nd January, 1964."      Before dealing  with the  rival submissions made by the learned counsel  for the  parties the relevant provisions of the Act with which we would be concerned may be referred to. Under the  charging provision  contained in  s. 3 of the Act wealth tax  is  charged,  subject  to  the  other  provision contained in  the Act,  for every assessment year 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.  ’Net  Wealth’  is defined in  s. 2  (m) as meaning (so far as is material) the amount by  which the  aggregate  value  of  all  the  assets

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belonging to the assessee on the valuation date is in excess of the aggregate value of all the debts owed by the assessee on that  date. The expression ’assets’ is defined in s.2 (e) and the relevant part thereof runs thus : 572           2.(e)  ’assets’   includes   property   of   every           description, movable  or immovable  property,  but           does not include-           (i)       xx   xx   xx           (ii) xx   xx   xx           (iii)     xx   xx   xx           (iv) a  right to any annuity in any case where the           terms and conditions relating thereto preclude the           commutation of  any portion thereof into a lumpsum           grant; The next  material provision  is s. 5 (1) (vi) with which we are directly concerned and it runs thus:           Exemptions in respect of certain assets.           5.(1) Subject  to the  provisions of  sub- section           (1A),  wealth-tax  shall  not  be  payable  by  an           assessee in  respect of  the following assets, and           such assets  shall not  be  included  in  the  net           wealth of the assessee           (vi) the  right or interest of the assessee in any           policy of  insurance before  the moneys covered by           the  policies   become  due  and  payable  to  the           assessee:           Provided that in the case of a policy of insurance           the -  premium or other payment whereon is payable           during a period of less than ten years, the amount           that shall  not be  included in  the net wealth of           the assessee under this clause shall be a sum that           bears to the value of the right or interest of the           assessee in  the policy the same proportion as the           number of years during which the premium or other           payment on the policy is payable bears to ten; It may be stated that the above proviso was not there at the relevant time  and it has been inserted by Finance Act, 1974 with effect from 1.4.1975 but since an argument was based on it we  have thought  fit to  reproduce the  same.  The  next material provisions  are s. 5 (1) (vi a) and (vii) which run thus:           "    (vi a)  the right  of the assessee to receive      any annuity payable by the Central Government under the      provisions of s. 280D of the Income tax Act; 573           (Inserted by  Taxation Laws  (Amendment) Act, 1970           with retrospective effect from 1.4.1965)           (vii) the  right of  the  assessee  to  receive  a           pension or  other life  annuity in respect of past           services under an employer; Since a  contention was  raised that annuity policies of the type with  which we  are concerned  in the  case  cannot  be regarded as  life insurance policies it will be necessary to refer to the definition of life insurance business" given in s. 2  (11) of  the Insurance  Act, 1938. Section 2 (11) runs thus:           2 (11) Life insurance business’ means the business           of effecting  contracts of  insurance  upon  human           life, including  any contract  whereby the payment           of money  is assured  on death  (except  death  by           accident only) or the happening of any contingency           dependent on human life, and any contract which is           subject  to   payment  of   premiums  for  a  term           dependent on  human life  and shall  be deemed  to

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         include           (a) the  granting  of  disability  and  double  or           triple indemnity accident benefits, if so provided           in the contract of insurance,           (b) the granting of annuities upon human life; and           (c) the  granting of superannuation allowances and           annuities  payable  out  of  any  fund  applicable           solely to  the relief  and maintenance  of persons           engaged or who have been engaged in any particular           profession,  trade   or  employment   or  of   the           dependants of such persons;      At the  outset we  would like to dispose of the initial contention raised  on behalf  of the Revenue that a contract for deferred  annuity is  quite distinct  from a  ’policy of insurance’ the expression used in s. 5 (1) (vi)- since there is no element of insurance against any risk involved in such annuity policy  - a  contention which  found favour with the Wealth  Tax  Officer  but  was  rejected  by  the  Assistant Appellate Commissioner, the Tribunal and the High Court. The contention is  that in the case of a deferred annuity policy the annuitant, on payment of a lumpsum gets the right to the annuity equivalent  in the  shape of  deferred h  annual  or monthly payments guaranteed for a certain period (in 574 the instant  case for  35 years),  that there  is a  date on which the  annuity vests  in the annuitant (here 22.1.1964), that usually  there is  a provision that in the event of the death of the annuitant before the date of vesting the single premium paid  by him  would be returned to the proposer, and that the proposer may have (as is the case here) the option, to be  exercised before the date on which the annuity vests, to receive  the commuted value in lieu of deferred annual or monthly payments  and such  provisions clearly show that the intention  is  that  in  essence  the  annuity  contract  is operative from  the date  on which  the annuity-  vests  and thereafter there is no element of insurance in the contract. It is, therefore, urged that a contract for deferred annuity cannot be  treated as  a policy of insurance and as such the value thereof would not be exempt under s. 5 (1) (vi) of the Act. The  gravamen of  the contention  is that  there is  no element  of  insurance  covering  any  risk  on  human  life involved in a deferred annuity policy.      The  contention,   in   our   view,   proceeds   on   a misconception of  the true  or real  nature  of  a  deferred annuity policy.  It is  well    known  that  a  contract  of insurance based  on human  life can be effected in two ways, (a) the  insurer, in  consideration of payment of periodical premia, undertakes  to pay  the person for whose benefit the insurance is made a stipulated lumpsum upon the death of the person whose  life  is  insured  or  the  happening  of  any contingency  dependant   on  human  Life  (e.g.  usual  life policies or  endowment policies)  and (b)  the  insurer,  in consideration of  payment of a gross sum premium, undertakes to pay  the person  for whose  benefit the insurance is made annuity equivalent  (either annual  or monthly  instalments) after a  certain age  on  the  happening  of  a  contingency depending upon  the duration  of human  life (e.g.  deferred annuity policies).  In either  case it  is insurance against the risk  of penury  and as such is a contract of insurance. That contracts of insurance based on human life are effected in one  of the  two ways  mentioned above will be clear from the manner  in  which  the  concept  of  life  insurance  is understood in  the legal and commercial world. In Halsbury’s Laws of  England, Fourth  Edition Volume  25, page  13,  the following passage  occurs in  para 7 under the heading ’Main

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types of risk’:           7.  Main   types  of  risk.  For  convenience  the           different  types  of  insurance  business  may  be           classified as  follows: (1)  marine, aviation  and           transport   insurance   (2)   ordinary   long-term           insurance; (3)  personal accident  insurance;  (4)           property insurance; (5) liability 575           insurance;  (6)   motor  vehicle   insurance;  (7)           pecuniary 1088 insurance; (8) war risks assurance;           and (93 industrial insurance. Foot-note  2   deals  with  ’ordinary  long  term  insurance business’ and says - ’ordinary long term insurance business’ means the  business of  effecting and carrying out contracts of insurance  on human life or to pay any annuities on human life (A. 83 (2) (a) of Insurance Companies Act, 1974)      In Bouvier’s  Laws Dictionary  (Rawle’s Third Revision) Vol. 2, at page 1619, the following passages occur under the caption ’Life Insurance’:           -LIFE INSURANCE.  The insurance  of the  life of a           person is  a contract  by which  the  insurer,  in           consideration of  a certain  premium, either  in a           gross sum  or periodical  payments, undertakes  to           pay the  person for whose benefit the insurance is           made, a  stipulated sum,  or  annuity  equivalent,           upon  the  death  of  the  person  whose  life  is           insured,  whenever   this  shall  happen,  if  the           Insurance be  for the  whole life  or in case this           shall happen  within  a  certain  period,  if  the           Insurance be for a limited time-           An agreement  by the insurer to pay to the insured           or his  nominee a specified sum of money either on           the death of a designated life, or at the end of a           certain period  provided the  death does not occur           before, in consideration of the present payment of           a fixed  amount, or of an annuity till the death .           curs or the period of Insurance is ended.      The definition of ’life insurance business’ as given in s. 2  (11) of our Insurance Act, 1938 clearly includes, by a deeming provision,  the business  of granting  of  annuities upon  human  life  within  the  expression  ’life  insurance business’.      In C.I.T.  v. General  Family Pension  Fund, (1952)  22 Com. Cas  89 the  Calcutta High  Court has  held that if the right to  payment under  annuity contract is governed by the happening of a contingency which depends in any way upon the duration of  human life  the business  of effecting  such  a contract is life insurance business. When the same case came up in  appeal before  this Court  this Court  confirmed that view by observing that where the 576 business of  a  company  consists  exclusively  in  granting terminable pensions  or annuities dependent on human life in favour of  the subscribers  such business  is life insurance business.      In Chandulal Harjiwandas v. Commissioner of Income Tax, Gujrat, 63  ITR 627  while  dealing  with  a  policy  called ’Children’s Deferred Endowment Assurance" issued by the Life Insurance  Corporation  of  India  in  the  context  of  the question whether  rebate was  allowable on  the premia  paid during the  minority of  the life assured under s. 15 (1) of the Indian  Income-tax Act,  1922, this Court at page 631 of the Report has observed thus:           "Life insurance  in a  broader sense comprises any           contract in  which one party agrees to pay a given

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         sum upon  the  happening  of  a  particular  event           contingent upon  the duration  of human  life,  in           consideration  of   the  immediate  payment  of  a           smaller  sum   or  certain  equivalent  periodical           payment  by  another  party  (Halsbury’s  Laws  of           England third edition, volume 22, page 273).      In the instant case in each of the two annuity policies there is  a term  stipulating the  event on the happening of which the  annuity shall  cease or  determine and  it states that the  annuity shall cease or determine "on the expiry of 35 years calculated from the date on which the annuity vests (22.1.1964) or  at the death of the annuitant, if later." In other words the monthly payments are guaranteed for a period of 35  years commencing  from 22.1.1964  even if  the  death occurs before  the expiry  of the  period but  in  case  the annuitant lives  beyond the  said period  of  35  years  the monthly payments  shall continue to be made till he dies. In view of  this provision  which is to be found in each of the two annuity policies it cannot be gainsaid that the policies evidence a  contract of insurance covering the risk of human life and  such would fall within the expression a ’policy of insurance’ occurring  in .  5  (1)  (vi)  of  the  Act.  The contention that no element of insurance covering any risk of human  life  was  involved  after  22.1.1964  (the  date  of vesting) was,  in our view, rightly rejected by the AAC, the Tribunal and the High Court.      In the  light of  the  above  discussion  the  position becomes quite  clear that  annuities dependent on human life constitute a  species of  contracts of  life  insurance  and would normally  fall within  the expression  "any policy  of insurance" occurring in a. 5 577 (1) (vi) of the Act. The object of enacting the provision is the encouragement of thrift which element is present in both types of  life insurance  and hence  the provision should be interpreted in  such a manner as not to nullify that object. Moreover, s.  5 deals  with exemptions in respect of certain assets and one of such exempted assets under sub-clause (vi) of sub-s.  (1) thereof  is "the  right or  interest  of  the assessee in  any  policy  of  insurance  before  the  moneys covered  by  the  policy  become  due  and  payable  to  the assessee". It  is  quite  clear  that  while  granting  chis exemption the  legislature  has  used  the  expression  "any policy of  insurance" which  is  a  very  wide  import.  The exemption is  not confined  to rights  or interests  in life insurance policies alone much less any particular species of life  insurance   policies  but  it  extends  to  rights  or interests  of  an  assessee  in  other  types  of  insurance policies also,  such as a marine or a fire insurance policy, etc. It cannot be suggested that the right or interest of an assessee in  such other  types of  policies has  no value or cannot be  valued. For  instance, a marine or fire insurance policy may be for three or five years and in such a case the unexpired value of the premium could be one of the bases for determining the  value of  the assessee’s  interest  in  the policy on  the valuation date; similarly it is possible that the contingent  event insured  against has  occurred, though the claim  is pending  determination on adjudication, and in such a case also the assessee would have a valuable interest in the policy. In such case the assessee’s interest would be exempt under  the aforesaid  clause if  the moneys under the policy have  not become  due and  payable on  The  valuation date. It is, therefore clear that the exemption contemplated by s.  5 (1)  (vi) covers  interests of  an assessee  in all types of  insurance policies  and the expression ’any policy

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of insurance’ in the said provision would a fortiori attract within its ambit or scope a deferred annuity policy based on human life,  it being  a species  of life insurance policies and, therefore, unless there is some warrant to cut down the ambit or  scope of  that expression the right or interest of an assessee in such a policy would be exempt from the charge of wealth-tax  unless of  course any  moneys thereunder have become due and payable to the assessee on the valuation date      Counsel for  the revenue urged a two-fold contention in support of the plea that there is such a warrant to cut down the ambit  or scope of the expression ’any insurance policy’ occurring in  s. 5 (1) (vi) and confine it to life insurance policies  of  the  usual  type  where  in  consideration  of periodical premia  the stipulated  lumpsum  becomes  payable upon the death or happening 578 of an  event dependant  upon duration of human life, that is to say the usual Life Policies or Endowment Policies. In the first place  it was  urged that  the proviso  to  sub-clause (vi), though  inserted by Finance Act, 1974 with effect from 1.4.1975, suggests  that the  legislature intended  that the said expression  should be so confined and annuities on life are excluded and in this behalf reliance was placed on Notes on Clauses  accompanying the  relevant Finance  Bill as also the speech of the Hon’ble Finance Minister while introducing the Bill.  Secondly it  was urged  that since non-commutable annuities only  have been  excluded from  the definition  of ’assets’ given  in s.  2(e), the  legislature could not have intended to  exempt annuities based on human life under s. 5 (1) (vi)  by bringing them within the expression ’any policy of insurance’  used therein.  For the  reason which we shall indicate presently  there is  no substance  in either of the pleas pressed by Counsel for the Revenue.      The proviso  to sub-clause  (vi)  has  been  reproduced above. It  has the  effect of  cutting  down  the  exemption contained in  the sub-clause  to some  extent. It  commences with the  words "Provided  that in  the case  of a policy of insurance the  premium or  other payment  whereon is payable during a  period of  less than 10 years" and the argument is that the  under-lined words suggest that the expression "any policy insurance" in the main sub-clause must mean. a policy based on human life and that too where periodical premia are payable and  as such  annuity  on  life  which  consists  of lumpsum investment  followed by  deferred annual  or monthly payments is  excluded. It  is impossible  to read the under- lined words  in the  proviso in  this manner  which has  the effect of  unduly narrowing  down the expression "any policy of  insurance"   used  in  the  main  sub-clause,  which  as indicated earlier, is of very wide import covering all types of insurance  policies like  life, marine  fire etc.  In the first place  the main  provision (sub-clause vi) was enacted in 1957  and continued  to  operate  for  17/18  years  till 31.3.1975 without  any qualification  and as such it will be absurd to  attribute to  The  legislature,  because  or  the insertion of  the proviso  (containing the underlined words) in 1975,  an intention  of having  used the  wide expression "any policy  of insurance"   throughout  all his period in a narrow sense  as suggested.  Secondly if  the main provision and the  proviso are  read together  the underlined words do not suggest  that any  narrow  construction,  much  less  as urged, was  intended and to say so would be missing the real object or purpose of the proviso. In our view the proper way to read  the proviso would be to treat the main provision as creating or granting an exemption and the 579

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proviso carving  out something  from the exemption. The main provision creates  an exemption in respect of the assessee’s right or interest in any policy of insurance and the proviso seeks to cut down that exemption to a limited extent, namely whenever there  is a  policy of insurance in respect whereof periodical premia are payable for a duration of less than 10 years  then   in  such  a  case  a  proportionate  exemption specified  therein   will  be   available  to  the  assessee irrespective of  what type  of policy it is; the proviso has no other  effect. That  such was  the object  or purpose  of inserting the  proviso will  be clear  if regard  is had  to relevant part  of notes on Clauses accompanying the Bill and the relevant  portion of  the speech of the Finance Minister while introducing  the  Bill.  We  were  taken  through  the relevant portions  of Notes  on Clauses  [vide  93  ITR  125 (Statutes)] and  the speech  of the Hon’ble Finance Minister while introducing  the Bill  vide [93 ITR 74 (Statutes)] and in our  view far  from supporting  the contention of counsel for the Revenue these lend support to the view which we have just expressed.  The relevant  portion of ’notes on Clauses’ states that  under this amendment (the insertion of proviso) the value of the taxpayer’s right or interest in a policy of insurance will  be exempt  from tax  only if  the premia are payable over  a period  of ten years or more. In cases where premia are  payable over  a period  of less  than ten years, only a  proportionate amount  of the value of the taxpayer’s right or  interest in the policy of insurance will be exempt from  wealth-tax.   The  Finance  Minister’s  speech  though strictly  not   relevant  as   an   aid   to   construction, substantially reiterates  what has been stated in the ’Notes on  Clauses’   accompanying  the   Bill.  On   this  account therefore, there  is no warrant to put a narrow construction on the  expression any policy of insurance occurring in sub- clause (vi) of s. 5 (1).      Similarly  counsel’s  reliance  on  the  definition  of ’assets’ given  in s.  2 (e) of the Act and particularly the exclusionary part  contained in  sub-clause (iv) in relation to annuities for the purpose of giving a narrow construction to the  expression ’any  policy of  insurance’ occurring  in sub-clause (vi)  of s. 5 (1) is of no avail. We have already quoted above s. 2 (e) (iv). The definition of ’assets’ is in two parts;  the  first  part  defines  assets  as  including property of  every description,  movable or  immovable while the second  part excludes  certain items  of  property  from falling within  the expression  ’assets’ and one of the item coming within this exclusionary part is: (iv) a right to any annuity in any case where the terms and conditions 580 relating thereto  preclude the  commutation of  any  portion thereof into a lumpsum grant . In other words non-commutable annuities only  are excluded  from ’assets’.  The contention for the  Revenue is  that if  under s.  2 (e) (iv) only non- commutable annuities  have been excluded from the definition of assets  then the  legislature could  not have intended to exempt annuities  based on human life from wealth-tax charge under s.  5 (1)  (vi); in  other words  it is  urged that it would  be   incongruous  for   the  legislature  to  include commutable annuities  on life within the expression ’assets’ under s.  2 (e)  on the  one hand  and at  the same  time to exempt such  annuities from  the charge  by  including  them within the  expression ’any  policy of  insurance’ under  s. 5(1)  (vi).   The  contention   in  our  view,  is  entirely misconceived, for, in the first place it proceeds on a wrong assumption that the topic of annuities is exhaustively dealt with under  s. 2 (e) (iv) and secondly it ignores the scheme

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of the  Act emerging  from the  relevant provisions.  It  is obvious that the postulate of the so called incongruity that is being  suggested  on  a  reading  of  the  two  concerned provisions together  must be that the topic of annuities has been dealt  with exhaustively  by s.  2 (e)  (iv).  but  the postulate is  non-existent. That  clause (iv) of s. 2 (e) is not exhaustive  of all annuities is clear from the fact that at  least   2  types   of  annuities   are  separately   and specifically dealt  with under  s. 5  (1) (vi-a)  and 5  (1) (vii) -  the former  speaks of  the    assessee’s  right  to receive annuity  payable by  the Central Government under s. 280D of  the Income-tax  Act and  the latter  speaks of  the assessee’s right  to receive a pension or other life annuity in respect  of past  services under  an employer. If that be so, the  argument based  on  any  incongruity  arising  from reading of  s. 2  (e) (iv)  and s.  5 (1) (vi) together must fall to  the ground.  Further a  careful analysis of the two relevant provisions  shows what is the general scheme of the Act. Section  2 (e)  defines ’assets’ to include property of every description;  it however  excludes certain  items from the purview  of  the  charge  by  excluding  them  from  the definition of  ’assets’, while  s. 5  (1) (vi)  on the other hand exempts  certain assets  from the tax by declaring that tax will  not be payable in respect of such assets. In other words in order to be covered by the exemption under s. 5 (1) (vi) a property must in the first instance be an asset under s. 2  (e). The  question  of  exempting  commutable  annuity policies of  insurance arises  only  because  they  are  not excluded from  the definition  but because  they fall within the definition  of ’assets’.  It is therefore, fallacious to contend that because commutable annuity policies fall within ’assets’ they should not be exempted under s. 5 (1) (vi). 581      We have  already pointed out that a reading of s. 2 (e) together with  s. 5  (1) (vi-a)  and 5  (1)(vii) negates the view that  legislative intention  was to  deal  exhaustively with annuities  under s.  2 (e) (iv). Now, a commutable life annuity received  from  an  Employer  would  undoubtedly  be exempt from  the charge  of wealth-tax under s. 5 (1) (vii). If s.  2(e) is  construed as  confining, by implication, the exemption from wealth tax to non-commutable annuities alone, then there  would be  an obvious  conflict between  s. 5 (1) (vii) and  s. 2  (e). Therefore,  a harmonious reading of s. 2(e) (iv) with s. 5 (1) (vi) and s.5 (1) (vii) would be that while  non-commutable   annuities  are  wholly  outside  the purview of  the wealth-tax,  commutable annuities are exempt under s.5  (1) (vi)  and 5  (1) (vii)  to the limited extent mentioned in  each. It  is well  settled that  when  such  a harmonious construction  is possible  and which furthers the object of  the Act  namely to  promote thrift and channelise private savings for national use, the same must be preferred to the  construction which  leads to  a conflict between s.2 (e) (iv)  and s.5  (1) (vi).  The contention  that a  narrow construction should  be placed on the expression ’any policy of insurance’  occurring in  s. 5  (1) (vi) of the Act, has, therefore  to   be  rejected.   In  other  words  commutable annuities on  life like  the ones in the instant case, would fall under  s.5 (1)  (vi) of  the Act  and the value thereof would qualify for the exemption from the charge.      In the result we decide the point raised in the appeals in favour  of the assessees and confirm the view of the High Court. The appeals are therefore, dismissed with costs. A.P.J.                                    Appeals dismissed. 582

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