Contingent trust interests and life income rights were held taxable, with no wealth-tax annuity exemption.

Where trust deeds expressly postponed vesting of corpus until a specified future date and provided alternative dispositions if the beneficiary died earlier, the beneficiary was held to have only a contingent interest despite interim enjoyment of income. That contingent interest was treated as capable of valuation and could not be assessed at nil merely because it was not a vested right. The right to receive trust income for life under a separate deed was held to be a life interest, not an annuity, and therefore did not qualify for wealth-tax exemption. The reference was answered in favour of the Revenue.

---

---

Issues: (i) Whether the beneficiary had a vested interest in the corpus of the two trusts on the relevant valuation dates or only a contingent interest; (ii) whether the value of that interest could be assessed at nil; (iii) whether the right to receive income for life under the grandmother's trust deed constituted an annuity exempt under the Wealth-tax Act.

Issue (i): Whether the beneficiary had a vested interest in the corpus of the two trusts on the relevant valuation dates or only a contingent interest.

Analysis: The trust deeds directed that the corpus was to be held for the beneficiary absolutely only from the expiry of the specified period and not otherwise. The scheme of the deeds, including the alternate dispositions if the beneficiary died before the period expired, showed that vesting was postponed until the beneficiary survived to the relevant date. The rule favouring vesting and the exception based on prior enjoyment of income under the Transfer of Property Act were treated as rules of construction that must yield to a clear contrary intention expressed in the instrument. The language used in the deeds manifested an intention that no present vested interest arose before the expiry of the period.

Conclusion: The beneficiary had only a contingent interest in the corpus, not a vested interest, and this conclusion was against the assessee.

Issue (ii): Whether the value of that interest could be assessed at nil.

Analysis: Once the beneficiary's interest was held to be contingent rather than a mere chance of succession, it was capable of valuation as a property interest. The Tribunal's view that the interest had no market value because it was only a spes successionis was rejected, since the beneficiary had an existing contingent interest in the trust corpus. A contingent interest is not necessarily without value.

Conclusion: The value could not be taken at nil, and this conclusion was against the assessee.

Issue (iii): Whether the right to receive income for life under the grandmother's trust deed constituted an annuity exempt under the Wealth-tax Act.

Analysis: The right under the third trust deed was a life interest in the trust income, not an annuity within the meaning of the exemption provision. The governing principle was that a life interest in trust income does not become exempt merely because it is payable periodically during life.

Conclusion: The right was not an annuity and was not exempt from wealth-tax, and this conclusion was against the assessee.

Final Conclusion: The reference was answered entirely in favour of the Revenue, with the beneficiary's interest in the first two trusts held to be contingent and taxable, and the life income under the third trust deed held not to enjoy annuity exemption.

Ratio Decidendi: Where the terms of a settlement clearly postpone vesting until a specified future event and expressly negate an earlier vesting, the beneficiary acquires only a contingent interest despite receiving interim income, and a life interest in trust income is not an annuity for wealth-tax exemption purposes.

---