Wealth-tax exemption for annuity insurance policies continues until policy moneys become due and payable

Section 5(1)(vi) of the Wealth-tax Act, 1957 was treated as wide enough to cover annuity insurance policies, because the phrase "any policy of insurance" includes deferred annuity arrangements issued as life insurance business. The separate references to Government annuities and pension or life annuities were read as distinct provisions and not as limiting clause (vi). The exemption was also held to continue until the policy moneys became due and payable, so in a deferred annuity only the instalment actually accrued in the relevant year could be brought to wealth-tax, while the balance remained exempt.

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Issues: (i) Whether the assessee's right or interest in a deferred annuity insurance policy is exempt from wealth-tax under section 5(1)(vi) of the Wealth-tax Act, 1957. (ii) Whether the exemption under section 5(1)(vi) continues until the moneys under the policy become due and payable, so that only the amount actually due in the relevant assessment year can be brought to tax.

Issue (i): Whether the assessee's right or interest in a deferred annuity insurance policy is exempt from wealth-tax under section 5(1)(vi) of the Wealth-tax Act, 1957.

Analysis: The expression "any policy of insurance" in section 5(1)(vi) was held to be wide enough to include all kinds of insurance policies, including annuity policies issued by the Life Insurance Corporation. The Court noted that the policies were admitted to be policies of insurance and were within the concept of life insurance business under the Insurance Act, 1938. The separate exemption clauses dealing with Government annuities and pension or life annuities were treated as distinct provisions dealing with different subject-matters and not as limiting the scope of clause (vi).

Conclusion: The assessee's right or interest in the annuity policy was exempt under section 5(1)(vi) of the Wealth-tax Act, 1957.

Issue (ii): Whether the exemption under section 5(1)(vi) continues until the moneys under the policy become due and payable, so that only the amount actually due in the relevant assessment year can be brought to tax.

Analysis: The exemption was held to operate only so long as the moneys covered by the policy had not become due and payable. In a deferred annuity arrangement, the policy does not mature into a single lump sum at vesting; rather, instalments become payable from year to year. Therefore, only the amount that had actually become due and payable during the relevant assessment year could be considered for wealth-tax, while the balance remained within the exemption.

Conclusion: Only the amount that had become due and payable in the relevant assessment year could be subjected to wealth-tax, and the remaining policy value stayed exempt.

Final Conclusion: The questions referred were answered in favour of the assessee, and the annuity insurance policies were treated as covered by the wealth-tax exemption, subject only to taxation of any instalments actually due in the relevant year.

Ratio Decidendi: The phrase "any policy of insurance" in section 5(1)(vi) of the Wealth-tax Act, 1957 is broad enough to include annuity insurance policies, and the exemption persists until the moneys under the policy become due and payable, with only the accrued amount in the relevant year being taxable.

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