1998 (11) TMI 44 - HC - Wealth-tax

Court rules annuity not an asset under Wealth-tax Act, costs awarded to assessee

Commissioner Of Income-Tax Versus Jayalalitha

Commissioner Of Income-Tax Versus Jayalalitha - [2000] 243 ITR 652, 159 CTR 260, 108 TAXMANN 302 Issues Involved:1. Applicability of the correct statutory provision.2. Determination of whether the annuity received by the assessee qualifies as an asset under section 2(e)(2)(ii) of the Wealth-tax Act, 1957.3. The legal implications of the annuity policy being purchased by a firm and not directly by the assessee.4. The interpretation of the term 'assessee' in the context of the Wealth-tax Act.Issue-wise Detailed Analysis:1. Applicability of the correct statutory provision:The court noted that the reference was made to the wrong statutory provision. The relevant provision for the assessment years in question (1976-77 to 1979-80) is section 2(e)(2)(ii) of the Wealth-tax Act, 1957, which excludes certain annuities from being considered as assets for wealth tax purposes.2. Determination of whether the annuity received by the assessee qualifies as an asset under section 2(e)(2)(ii) of the Wealth-tax Act, 1957:The provision states that an annuity is not considered an asset if it was not purchased by the assessee or any other person in pursuance of a contract with the assessee, and if its terms preclude commutation into a lump sum. The annuity in question was received by the assessee from a policy taken out by a film producer pursuant to an agreement with the firm 'Natyakalaniketan,' of which the assessee and her mother were partners. The firm was dissolved upon the death of the assessee's mother, and the annuity payments became payable to the assessee by virtue of her mother's will.3. The legal implications of the annuity policy being purchased by a firm and not directly by the assessee:The court emphasized that the contract under which the annuity was received was not entered into between the Life Insurance Corporation and the assessee as an individual. It was between the firm and the third party. The firm itself was not an assessee, and the annuity was payable to the firm, not directly to the assessee. The court highlighted that at the time of the annuity's purchase, the relevant statutory provision did not include the words 'not being an annuity purchased by the assessee or purchased by any other person in pursuance of a contract with the assessee.'4. The interpretation of the term 'assessee' in the context of the Wealth-tax Act:The court discussed the definition of 'assessee' under section 2(c) of the Wealth-tax Act, which includes a person by whom wealth-tax or any other sum of money is payable under the Act. The court noted that a firm is not a legal entity but a compendious name for the partners. However, the Wealth-tax Act recognizes the firm and its ownership of assets separately from the individual partners. The court referred to various legal precedents, including Supreme Court decisions, to support the argument that a contract with a firm cannot be construed as a contract with the individual partners for wealth tax purposes.Conclusion:The court concluded that the annuity received by the assessee was not an asset for the purposes of the Wealth-tax Act, as it was not purchased by the assessee or by any other person in pursuance of a contract with the assessee. The court emphasized the importance of strict construction of taxing statutes and ruled in favor of the assessee, stating that the annuity payments were not includible in her net wealth for the purposes of assessment. The court also awarded costs to the assessee in the sum of Rs. 2,000.