Compulsory deposit scheme accounts are not annuities for wealth-tax purposes and may be included at face value.

A compulsory deposit scheme account was analysed under wealth-tax principles and held not to qualify as an annuity under section 2(e)(ii) of the Wealth-tax Act, 1957. The amount credited to the account was treated as a deposit carrying interest, with repayment of principal and interest in instalments, and with variable returns inconsistent with the ordinary meaning of annuity. It was therefore includible in net wealth. The account was also not entitled to valuation discounting merely because withdrawals were restricted, since the deposit retained its ordinary bank-like character and face value remained the proper basis for inclusion.

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Issues: (i) Whether the amount standing in the compulsory deposit scheme account constituted an asset includible in net wealth, or was exempt as an annuity under section 2(e)(ii) of the Wealth-tax Act, 1957. (ii) Whether, if includible, its value had to be discounted because of restrictions on withdrawal.

Issue (i): Whether the amount standing in the compulsory deposit scheme account constituted an asset includible in net wealth, or was exempt as an annuity under section 2(e)(ii) of the Wealth-tax Act, 1957.

Analysis: An annuity, in the legal sense, is a fixed sum payable periodically and not a return related to a fixed proportion of capital with a variable interest component. The compulsory deposit scheme involved a deposit standing to the credit of the depositor in a bank, carrying interest, with repayment of principal and interest in instalments and with variation in the rate of interest. The scheme was also supported by statutory provisions treating the deposits as deposits for exemption purposes and by provisions permitting continued treatment as deposit on non-withdrawal, which were inconsistent with the concept of annuity. The definition of annuity in the special scheme for annuity deposits did not govern the general meaning under the Wealth-tax Act. The amount was also treated as purchased within the ordinary meaning of that term.

Conclusion: The amount was not exempt as an annuity and was includible in the assessee's net wealth.

Issue (ii): Whether, if includible, its value had to be discounted because of restrictions on withdrawal.

Analysis: The deposit was held to be an ordinary bank-like deposit earning substantial interest, with staged repayment and statutory restrictions on withdrawal. In those circumstances, there was no basis for reducing its value by discounting it below face value.

Conclusion: The value was not required to be discounted and the face value was includible.

Final Conclusion: The compulsory deposit scheme amount was treated as a taxable asset in full, and the appeal failed.

Ratio Decidendi: A periodic payment is not an annuity unless it is a fixed or predetermined sum unconnected with a variable return on capital; a compulsory deposit scheme account with variable interest and staged repayment is therefore not exempt as an annuity under wealth-tax law.

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