1985 (10) TMI 1 - SC - Wealth-tax

Assessees' Annuity Policies Exempt from Wealth Tax

Commissioner of Wealth-Tax, Punjab, Jammu And Kashmir, And Chandigarh Versus Yuvaraj Amrinder Singh

The court ruled in favor of the assessees, confirming that their right or interest in the annuity policies is exempt from wealth-tax under section ... 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 section 5(1)(vi) - Held, yes Issues Involved:1. Whether the right or interest of an assessee in an annuity policy is exempt from wealth-tax under section 5(1)(vi) of the Wealth-tax Act, 1957Rs.Detailed Analysis:1. Nature of Annuity Policies and Their Classification:The primary issue revolves around whether annuity policies fall under the definition of 'any policy of insurance' for the purpose of exemption under section 5(1)(vi) of the Wealth-tax Act, 1957. The court examined the nature of annuity policies, noting that they are a form of life insurance business as defined in section 2(11) of the Insurance Act, 1938, which includes 'the granting of annuities upon human life.' The court clarified that life insurance can be effected in two ways: through periodical premia resulting in a lump sum payment upon death or a contingency, and through a lump sum payment resulting in deferred annuity payments. Both forms are considered insurance against the risk of penury.2. Interpretation of Section 5(1)(vi):The court analyzed the language of section 5(1)(vi) of the Wealth-tax Act, which exempts the right or interest of the assessee in 'any policy of insurance' before the moneys become due and payable. The court emphasized that the term 'any policy of insurance' is broad and includes various types of insurance policies, not limited to traditional life insurance policies. The court rejected the contention that deferred annuity policies do not involve an element of insurance, affirming that they indeed cover the risk of human life.3. Legislative Intent and Proviso Interpretation:The court addressed the Revenue's argument that the proviso to section 5(1)(vi), inserted by the Finance Act, 1974, indicated a legislative intent to exclude annuity policies from the exemption. The court held that the proviso should be read as carving out a specific exception without narrowing the broad scope of the main provision. The proviso limits the exemption for policies with premia payable for less than ten years but does not imply that annuity policies are excluded from the definition of 'any policy of insurance.'4. Comparison with Section 2(e)(iv):The court examined the definition of 'assets' in section 2(e) of the Wealth-tax Act, which excludes non-commutable annuities from the definition of assets. The Revenue argued that this exclusion implies that commutable annuities should not be exempt under section 5(1)(vi). The court rejected this argument, clarifying that section 2(e)(iv) is not exhaustive of all annuities and that commutable annuities can still qualify for exemption under section 5(1)(vi) if they fall within the broad definition of 'any policy of insurance.'5. Harmonious Construction:The court emphasized the need for a harmonious construction of the relevant provisions to avoid conflicts and further the legislative intent of promoting thrift and channelizing private savings for national use. The court concluded that commutable annuities on life, like those in the present case, fall under section 5(1)(vi) and are exempt from wealth-tax.Conclusion:The court decided in favor of the assessees, confirming that their right or interest in the annuity policies is exempt from wealth-tax under section 5(1)(vi) of the Wealth-tax Act, 1957. The appeals were dismissed with costs.