Fixed trust payments can qualify as an annuity and remain outside net wealth where commutation is barred by the settlement terms.

Fixed recurring payments created by trust deeds may qualify as an annuity for wealth-tax purposes where they are a definite annual sum and not an aliquot share of fluctuating trust income. If the settlement directs payment out of income only, preserves the corpus for other beneficiaries, and contains no provision for satisfaction by capital, the annuity is not capable of commutation into a lump sum. On that basis, the capitalised value of such recurring payments is excluded from net wealth under section 2(e)(iv) of the Wealth-tax Act, 1957.

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Issues: (i) Whether the annual payments receivable by the assessee under the five trust deeds constituted an annuity within the meaning of section 2(e)(iv) of the Wealth-tax Act, 1957. (ii) Whether the terms of the trust deeds precluded commutation of the annuity or any part of it into a lump sum grant.

Issue (i): Whether the annual payments receivable by the assessee under the five trust deeds constituted an annuity within the meaning of section 2(e)(iv) of the Wealth-tax Act, 1957.

Analysis: The right created under the trust deeds was to receive fixed annual payments arising from Government securities and similar investments. The payments were not an aliquot share in fluctuating trust income, nor were they shown to depend on a variable general income of the trust estate. The mere possibility that investments might be altered in future did not alter the character of the right on the facts as they stood. The right was therefore to receive a certain or definite recurring sum.

Conclusion: The right was an annuity and the finding was in favour of the assessee.

Issue (ii): Whether the terms of the trust deeds precluded commutation of the annuity or any part of it into a lump sum grant.

Analysis: The trust deeds created a payment out of income only, while the corpus was to remain intact and pass to other beneficiaries on the settlor's death or on specified contingencies. There was no provision enabling the annuity to be satisfied by exhausting any part of the trust fund, and the structure of the settlements itself negatived any right to demand commutation. On that basis, the terms and conditions inherently barred conversion of the recurring payment into a capital sum.

Conclusion: The annuity could not be commuted into a lump sum grant and this issue was decided in favour of the assessee.

Final Conclusion: The capitalised value of the recurring payments was not includible in the assessee's net wealth, so the exemption under section 2(e)(iv) applied and the reference was answered against the department.

Ratio Decidendi: A fixed recurring payment created by trust deeds is an annuity for wealth-tax purposes where it is not dependent on a fluctuating aliquot share of trust income, and it falls within the exemption if the settlement, by its terms, does not permit commutation into a lump sum and preserves the corpus for other beneficiaries.

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