1986 (8) TMI 3 - SC - Wealth-tax

Supreme Court rules life interest in trust estate not taxable as foreign asset

Commissioner of Wealth-Tax, Calcutta Versus Mrs. O.M.M. Kinnison. (decd., Through Her Executors And Trustees)

The Supreme Court upheld the High Court's decision that the life interest in the testamentary trust estate, including shares in an Indian company and ... Whether Tribunal is right in holding that the assessee who has a life interest in the testamentary trust estate of the late C. H. Kinnison comprising, inter alia, of the shares in an Indian company and commission from the managing agency of an Indian company can be said to have an interest in such shares and commission and that such interest is property located in India so as to be taxable under the Wealth-tax Act - question must be answered in the negative, in favour of the assessee Issues Involved:1. Taxability of the life interest in the testamentary trust estate under the Wealth-tax Act.2. Classification of the life interest as an annuity exempt under section 2(e)(iv) of the Wealth-tax Act.Detailed Analysis:1. Taxability of the Life Interest in the Testamentary Trust Estate:The primary issue was whether the assessee's life interest in the testamentary trust estate, which included shares in an Indian company and commission from the managing agency, constituted property located in India and thus taxable under the Wealth-tax Act. The High Court initially ruled in favor of the assessee, determining that the right to receive income from the trust property, managed by trustees in England, should be regarded as an asset located outside India. The Supreme Court upheld this decision, emphasizing that the nature of the asset was a chose-in-action enforceable in England due to the trust's administration being governed by English law and the trustees' and beneficiary's residence in England. The court concluded that the asset was foreign in quality and not subject to wealth-tax in India.2. Classification of the Life Interest as an Annuity Exempt Under Section 2(e)(iv) of the Wealth-tax Act:The second issue was whether the life interest of the assessee could be classified as an annuity exempt under section 2(e)(iv) of the Wealth-tax Act. The High Court ruled against the assessee on this point, and the Supreme Court did not address this issue further in the appeal, focusing solely on the first question regarding the location of the asset.Conclusion:The Supreme Court affirmed the High Court's judgment that the life interest in the testamentary trust estate was a foreign asset and not located in India, thus not taxable under the Wealth-tax Act. The appeal by the Revenue was dismissed, and no costs were awarded as the respondent did not enter an appearance.