1994 (12) TMI 29 - HC - Wealth-tax

Inclusion of Annuity Value in Net Wealth Upheld by Bombay HC

The Bombay High Court held that the value of the right to receive annuities in the future should be included in the assessee's net wealth under the ... Annuity Policy, Net Wealth, Right To Receive Issues:Whether the value of the right to receive annuities in the future secured on annuity policies is includible in the net wealth of the assessee under section 2(e) of the Wealth-tax Act, 1957.Analysis:The judgment pertains to a reference under section 27(1) of the Wealth-tax Act, 1957, where the Income-tax Appellate Tribunal referred a question of law to the Bombay High Court. The issue revolved around whether the value of the right to receive annuities in the future, secured on annuity policies, should be included in the net wealth of the assessee. The assessee, a professional film artiste, had a contract with a film producer where annuity policies were taken out to secure payment of specified sums to the assessee over several years. The Wealth-tax Officer initially included the value of the annuity policy in the assessee's net wealth. However, the Appellate Assistant Commissioner directed the deletion of the annuity policy value if the assessee followed the cash system of accounting. The Tribunal upheld the decision, stating that the value of the annuities in future was not an asset under section 2(e) of the Wealth-tax Act.The primary question for determination in this case was whether the right of the assessee to receive annuities in the future should be considered part of his net assets under section 2(e) of the Wealth-tax Act. The Act defines assets to include property of every description but excludes a right to annuity under certain conditions. The definition was modified in 1975, making it clear that a right to annuity is an asset unless certain conditions are met. In this case, the annuity purchased by the producer in pursuance of a contract with the assessee did not fall under the exclusion criteria, making it an asset under the Act.The judgment further clarified that for an annuity to be considered as such, the payments should be fixed and predetermined, not subject to variation based on the income of the corpus. In this case, the predetermined amounts payable to the assessee constituted an annuity, making it includible in the net wealth. Therefore, the Tribunal's decision was deemed incorrect, and the value of the right to receive annuities in the future was held to be part of the assessee's net wealth. The judgment favored the Revenue, answering the referred question in the negative.In conclusion, the judgment emphasized the inclusion of the value of annuities in the assessee's net wealth under the Wealth-tax Act, based on the specific conditions and definitions outlined in the Act. The decision clarified the treatment of annuities as assets and upheld the Revenue's position in this particular case.