TaxTMI 
TaxTMI 
TaxTMI 
1980 (9) TMI 2
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....ed by his father, Shri Pyarey Lal Banerji (hereinafter referred to as the "settlor"), the assessee became entitled to receive the income arising out of the trust fund during his (assessee's) lifetime after the death of the settlor subject to the liability to pay out of such income certain specified sums periodically as mentioned in the deed to two other persons. After the death of the assessee, the income of the trust fund was directed to be paid in equal shares to the two other persons referred to above and if either of them should die before the death of the assessee then the whole of such income had to be paid to the survivor of them during his or her life. There were certain other directions in the trust deed with regard to the disposal of the income arising out of the trust fund with which are not concerned in this case. The trust fund consisted of certain India Government loan bonds or securities issued from time to time under which certain specified interest was payable. The total face value of such bonds amounted to Rs. 10 lakhs. The Imperial Bank of India, Calcutta (hereinafter referred to as "the trustee"), was appointed as the trustee under the trust deed and the Governm....
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....ivor of them during his or her life. (d) If the said Pranab Kumar Banerji, Sunab Kumar Banerji and Purnima Banerji shall predecease the settlor or if they or any one or more of them shall die after having survived the settlor, then in the former case on and from the death of the settlor and in the latter case on and from the death of the survivor of the said Pranab Kumar Banerji, Sunab Kumar Banerji and Purnima Banerji, the bank shall stand possessed of the trust fund and the income thereof UPON SUCH TRUSTS as the said Pranab Kumar Banerji by any deed or deeds with or without power of revocation may appoint or by will or codicil shall at any time or times appoint AND IN DEFAULT of and so far as any such appointment shall not extend IN TRUST, for the settlor's nephew, Manoj Kumar Banerji, and the settlors' niece, Jhuni Banerji (now minors), if they are both alive, or such one of the two as may be alive and in default of both for the person or persons who under the law relating to intestate succession would on the death of the settlor have been entitled thereto, if the settlor had died possessed thereof and intestate. " In exercise of the power that he had reserved to himself under....
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....bad, that since the corpus of the trust fund was vested in the trustees and not in him, the value of the trust fund should not be included in his total wealth and that in any event as he had only the right to receive an annuity under the trust deed, the trust fund should not be taken into account by reason of section 2(e)(iv) of the Act. The WTO rejected the contentions of the assessee and included the full market value of the trust fund in the total wealth of the assessee in all the five assessment orders passed by him. The appeals filed by the assessee before the AAC of Wealth-tax, Allahabad, were dismissed. On further appeal, the Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, confirmed the orders passed by the WTO and the AAC of Wealth-tax in so far as the question of non-applicability of s. 2(e)(iv) of the Act was concerned but it held that the inclusion of the entire value of the corpus in the computation of net wealth was not correct as the assessee had merely a life interest in it. Accordingly, it directed the WTO to modify the assessments valuing the life interest of the assessee according to recognised principles of valuation. Thereafter, at the instance of the....
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....the debts owed by the assessee on the valuation date other than those debts referred to in sub-cls. (i) to (iii) thereof. In section 2(e) of the Act, the expression "assets" is defined as including property of every description, movable or immovable, but not including in relation to the assessment year commencing on the 1st April, 1969, or any earlier assessment year those items which are mentioned in sub-cls. (i) to (v) of s. 2(e)(1). Sub-cl. (iv) of s. 2(e)(1) of the Act which is relevant for the purpose of this case excludes from the definition of the word "assets" a right to an annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant. In order to claim that an item of property should not be treated as an asset for purposes of the Act by virtue of sub-cl. (iv) of s. 2(e)(1), it has to be established, (i) that it is an annuity, and (ii) that commutation of any portion thereof into a lump sum grant is precluded by the terms and conditions relating thereto. The property in question is the right of the assessee to receive the net income of the trust funds during his lifetime. The primary facts that eme....
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....show that the original securities comprising the trust property were converted or replaced by securities not bearing a fixed rate of interest and returning a fixed and definite income. Proceeding, therefore, on the basis that a definite and certain income is yielded by the securities, we have no hesitation in holding that what the assessee received was an amount which did not depend upon or was related to the general income of the estate in the sense that it fluctuated with a fluctuating income. Having regard to the character and nature of the property settled under the trust, no question arises of a rise or fall in the amount of income produced by the trust property and, therefore, in a real sense what the assessee is entitled to is a definite and certain sum. Also, having regard to the terms of the trust deed, it is not possible to say that the interest of the assessee constitutes an interest in the capital of the trust fund. Therefore, upon the test laid down by Jenkins L.J. in Duke of Norfolk, In re: Public Trustee v. Inland Revenue Commissioners [1950] 1 Ch 467 ; 3 EDC 109 (CA), it cannot be described as a life interest. We are fortified in the view we are taking by the decisi....
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....rtain sum; that may be given for life, or for a series of years; it may be given during any particular period, or in perpetuity; and there is also this singularity about annuities, that although payable out of the personal assets, they are capable of being given for the purpose of devolution, as real estate; they may be given to a man and his heirs, and may go to the heir as real estate; so an annuity may be given to a man and the heirs of his body; that does not, it is true, constitute an estate tail, but that is by reason of the Statute De Donis, which contains only the word 'tenements' and an annuity, though a hereditament, is not a tenement; and an annuity so given is a base fee." It is further observed in the above decision thus: "But this appears to me at least clear, that if the gift of what is called an annuity is so made, that, on the face of the will itself, the testator shows his intention to give a certain portion of the dividends of a fund, that is a very different thing ; and most of the cases proceed on that footing. The ground is, that the court construes the intention of the testator to be, not merely to give an annuity, but to give an aliquot portion of the inco....
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....d annually the net income of each of the trusts after deducting costs and expenses of administration of the trust. Under the terms of the trust, after the lifetime of the assessee, the corpus of the trust in each case had to be dealt with as provided in them. Since the assessee was entitled to the whole residue of the income from the trust funds available after defraying expenses of the trust and not any specified or pre-determined amount, the High Court of Gujarat held that the right of the assessee under each of the trust deeds was not an annuity but amounted only to a life interest. The decision of the High Court of Gujarat was later affirmed by this court in CWT v. Arundhati Balkrishna [1970] 77 ITR 505, 509, in which it was observed thus: " On an analysis of the relevant clauses in the three trust deeds, it is clear the assessee was given thereunder a share of the income arising from the funds settled on trust. Under those deeds she is not entitled to any fixed sum of money. Therefore, it is not possible to hold that the payments that she is entitled to receive under those deeds are annuities. She has undoubtedly a life interest in those funds. In Ahmed G. H. Ariff v. Commiss....
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....een converted into other securities yielding higher or lower income, it should be assumed that the benefit conferred on the assessee was only an "annuity" and not a life interest. This contention has to be rejected for the very reason for which a similar contention was rejected by this court in CWT v. Her Highness Maharani Gayatri Devi of Jaipur [1971] 82 ITR 699, 703, 704 in the following words: " From these clauses it is clear that the intention of the Maharaja was that the assessee should get a half share in the income of the trust fund. Neither the trust fund was fixed nor the amount payable to the assessee was fixed. The only thing certain is that she is entitled to a 15/30 share from out of the income of the trust fund. That being so, it is evident that what she was entitled to was not an annuity but an aliquot share in the income of the trust fund. Mr. Setalvad, learned counsel for the assessee, contended that during the year with which we are concerned, there was no change in the trust fund and in view of that fact and as we are considering the liability to pay wealth-tax, we would be justified in holding that the amount receivable by the assessee in the year concerned wa....
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.... way equivalent to an interest in a proportion of the capital of the property charged sufficient to produce its yearly amount. It is nothing more or less than a right to receive the stipulated yearly sum out of the income of the whole of the property charged (and in many cases out of the capital in the event of a deficiency of income). It confers no interest in any particular part of the property charged, but simply a security extending over the whole. The annuitant is entitled to receive no less and no more than the stipulated sum. He neither gains by a rise nor loses by a fall in the amount of income produced by the property, except in so far as there may be a deficiency of income in a case in which recourse to capital is excluded. On the other hand, a life interest in a share of the income of property is equivalent to, and indeed constitutes, a life interest in the share of the capital corresponding to the share of income. The life tenant enjoys the share of income whatever it may amount to, and his interest, viewed as a life interest in capital, consists of a constant proportion of the whole property, whether the income is great or small, and whether the capital value of the p....