Civil Appeal No 1163 1167 of 1973
Appeal by Special Leave from the Judgment and order dated 15 3 1971 of the Allahabad High Court in Wealth Tax Reference No 232 of 1964
section T Desai and Miss A Subhashini for the Appellant
section N Kacker V K Pandita and E C Agarwala for the Respondent
VENKATARAMIAH J These appeals by special leave under Article 136 of the Constitution are directed against the judgment dated March 15 1971 of the Allahabad High Court in Wealth Tax Reference No 232 of 1964
The facts of the case may be briefly stated thus The Income tax Appellate Tribunal Allahabad Bench Allahabad referred under section 27 1 of the hereinafter referred to as the Act  to the High Court of Allahabad for its opinion the following question of law arising out of the assessment orders made under the Act in respect of the assessment years 1957 58 to 1961 62 Whether the interest of the assessee in the trust fund amounted to an annuity exempt under section 2 e iv of the  The assessee concerned in this case is Shri P K Banerji
Under a deed of trust dated October 26 1937 executed 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 life time 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 asessee then the whole of such income had to be paid 659 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 we 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 lacs
The Imperial Bank of India Calcutta hereinafter referred to as the trustee  was appointed as the trustee under the trust deed and the Government loan bonds or securities referred to above were transferred and endorsed in favour of the trustee with a direction to discharge the obligations referred to in the trust deed
Under clause 1 of the trust deed the settlor directed the trustee to retain with it the said Government loan bonds or securities and upon redemption of any of them to invest the proceeds thereof in the purchase of three and a half per cent Government promissory notes old issue or if this was not practicable in any other security of the Government of India or if this too was not practicable then in any other securities authorised for the investment of trust funds by the or any statutory modification thereof and to hold and stand possessed of the Government loan bonds or securities referred to above or any other investments representing the same as the trust fund to be used in accordance with the directions contained in the deed
The following are the relevant recitals of the trust deed dated October 26 1937 containing directions regarding the manner in which the income arising from the trust fund should be appropriated or spent a The Bank shall pay the net income of the Trust Fund to the settlor during his life and may instead of paying the same to him direct credit the same to the current account of the settlor with the Bank so long as there shall be any such current account
b From and after the death of the settlor the Bank shall pay the net income of the trust fund to the settlor s son Pranab Kumar Banerji during his life if he should survive the settlor subject to the payment there out every six months on the thirtieth day of April and thirty first day of October in every year of a sum of Rupees Nine hundred to the settlor s son Sunab Kumar Banerji and a sum of Rupees six hundred to the settlor s daughter in law Purnima Banerji during his or her life if he or she shall survive the settlor
c If the said Pranab Kumar Banerji shall predecease the settlor or if he should die after having survived the settlor then 660 in the former case on and from the death of the settlor and in the latter case on and from the death of the said Pranab Kumar Banerji the income of the trust fund shall be paid in equal shares to the said Sunab Kumar Banerji and Purnima Banerji if he or she should be then alive or the whole of such income to the survivor 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 deed 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 settlor s 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 the trust deed dated October 26 1937 to modify the terms thereof the settlor executed another trust deed dated April 28 1950 by which clauses b and c of the trust deed dated October 26 1937 extracted above were substituted by the following clauses b From and after the death of the settlor the Bank shall pay the net income of the trust funds to the settlor s son Pranab Kumar Banerji during his life time if he should survive the settlor
c If the said Pranab Kumar Banerji shall predecease the testator or if he should 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 said Pranab Kumar Banerji the income of the trust funds should be paid in equal shares to my son Sunab Kumar Banerji and my daughter in law Shakuntala Banerji if he or she should be then alive or the whole of such income to the survivor of them during his or her life
 661 The name Purnima Banerji  occurring in clause d of the trust deed dated October 26 1937 was substituted by the name Shakuntala Banerji  by the trust deed dated April 28 1950
The resulting position was that the trustee was obliged to pay the net income of the trust fund to the settlor during his life time and after his death the trustee had to pay the net income of the trust fund to the assessee during his life time if he should survive the settlor
If the assessee should pre decease the settlor then on and from the death of the settlor and if the assessee should die after the settlor on and from the death of the assessee the income of the trust fund had to be paid in equal shares to Sunab Kumar Banerji the other son of the settlor and Shakuntala Banerji the daugther in law of the settlor if he or she should be then alive and the whole of such income had to be paid to the survivor of them during his or her life
We are concerned in this case principally with the character of the benefit conferred on the assessee by clause b of the trust deed as substituted by the trust deed dated April 28 1950
The settlor died sometime in 1952 and since then the assessee was receiving the net income from the trust fund in accordance with the said clause as the sole beneficiary
During the assessment proceedings under the Act relating to the assessment years in question the assessee contended before the Wealth tax Officer Allahabad that since the corpus of the trust fund was vested in the trustee 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 Wealth tax Officer 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 Appellate Assistant Commissioner of Wealth tax Allahabad were dismissed
On further appeal the Income tax Appellate Tribunal Allahabad Bench Allahabad confirmed the orders passed by the Wealth tax Officer and the Appellate Assistant Commissioner of Wealth tax in so far as the question of non applicability of section 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 Wealth tax Officer to modify the assessments valuing the life interest of the assessee according to recognised principal of valuation
Thereafter at the instance of the assessee the common question of law set out above was referred to the High 662 Court of Allahabad under section 27 1 of the Act
All the five references relating to the five assessment years were heard together by the High Court in the year 1970
Since the High Court was of the view that it was necessary to direct the Income tax Appellate Tribunal to submit a supplementary statement of the case on the following questions 1 Whether the right of the assessee to receive the amounts in terms of the deeds of trust referred to above is an annuity within the meaning of section 2 e iv of the Act 2 if so whether the terms and conditions relating to such annuity preclude the commutation of any portion thereof into a lump sum grant it directed the Tribunal by its order dated February 27 1970 to submit a supplementary statement of the case on the above questions
In accordance with the directions of the High Court the Tribunal submitted a supplementary statement of the case in August 1970 stating that the asset in question was not an annuity referred to in section 2 e iv of the Act
The cases were there after heard by the High Court
By its judgment dated March 15 1971 the High Court answered the common question of law referred to it in the affirmative in favour of the assessee holding that the interest of the assessee in the trust fund amounted to an annuity exempt under section 2 e iv of the Act
Dissatisfied with the judgment of the High Court the Department has come up in appeal to this Court
There is no dispute that in the case of assets chargeable to tax under the Act which are held by a trustee under a duly executed instrument in writing whether testamentary or otherwise wealth tax can be directly levied upon and is recoverable from the person on whose behalf the assets are held
Section 3 of the Act creates the said charge in respect of the net wealth on the corresponding valuation date of every individual Hindu undivided family and Company at the rate or rates specified in Schedule I to the Act Net wealth  according to section 2 m of the Act means the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets wherever located belonging to the assessee on the valuation date including assets required to be included in his net wealth as on that date under the Act is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than those debts referred to in subclauses i to iii thereof
In section 2 e of the Act the expression assets is defined as including property of every description 663 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 clauses i to v of section 2 e 1
Sub clause iv of section 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 clause iv of section 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 life time
The primary facts that emerge from the orders of the Tribunal are 1 that under the trust deed the settlor intended that after the settlor s death the assesee should be the sole beneficiary of the net income from the trust fund during his assessee s life time 2 that the assessee had been treating himself as the owner of the trust fund for purposes of income tax payable by him and had been declaring the income of the trust as his own income and claiming in his own income tax returns deduction for tax paid at source by the trust 3 that in fact the assessee was the sole beneficiary of the net income derived from trust fund 4 that he had under the trust deed the right of appointment of his successors under certain circumstances and 5 that the trustees had the power to invest the proceeds of the Government loan bonds or securities which constituted the trust fund upon their redemption as provided in the deed and that therefore the net income realisable from the trust fund was subject to variation
One of the significant features of the trust deed dated October 26 1937 is that what was payable to the assessee was not a periodical payment of a definite predetermined sum of money but only the net income of the trust funds although it was possible to predicate at any given point of time such income with some certainty having regard to the fact that the trust fund in the instant case consisted of Government loan bonds or securities the proceeds of which on redemption were liable to be invested in other securities as indicated in the trust deed dated October 26 1937
The principal reason given by the High Court to arrive at the conclusion that the property in question was an annuity is set out in its judgment thus 664 In the case before us the property settled under the trust deed consists of Government securities and it is apparent from the schedule appended to the deed that they bear interest at a fixed and determined rates
The settlor conferred upon the trustee the power to redeem the government securities and to invest the proceeds in the purchase of 3 12 Government promissory notes old issue or in any other securities of the Government of India or that if that was not practicable then in any other securities authorised for the investment of the trust fund by the 
There is nothing on the record before us to 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 vs Inland Revenue Commissioner  it cannot be described as a life interest
We are fortified in the view we are taking by the decision on somewhat comparable faces of the Andhra Pradesh High Court in Commissioner of Wealth tax vs Nawab Fareed Nawaz Jung  Ors It is true that the assessee is entitled to the net income only and that because the trustee has the right to deduct from the gross income its remuneration its annual income fee and the expenses in managing the trust estate the net income may vary from year to year
Yet even here the remuneration and the annual income fee can be charged by the trustee at a fixed rate only and any variation in the net income may be attributed to the varying expenses from year to year in managing the trust estate
We have already pointed out that freedom from variation is not an absolute test determining the character of an annuity
We are of opinion that where it varies merely because 665 of the charges and expenses payable on account of the administration of the trust it does not lose its character as an annuity
Upon the aforesaid consideration it seems to us that the right of the assessee to the net income from the trust property under the trust deed can be described in law as a right to an annuity The High Court appears to have felt that the facts of the case were distinguishable from the facts in Ahmed G H Ariff  Ors
vs Commissioner of Wealth tax Calcutta1 and the facts in Commissioner of Wealth tax Gujarat II vs Mrs Arundhati Balkrishna2
We shall presently deal with these two cases
The word annuity  is not defined in the Act
In one of the earliest legal compilations of the English law the term annuity  has been explained as an yearly payment of a certain sum of money granted to another in fee or for life or for a term of years either payable under a personal obligation of the grantor or charged upon his pure personality although it may be made a charge upon his freehold or leasehold lend in which latter case it is commonly called a rent charge See Co Litt 144b
In Halsbury s Laws of England Third Edition Vol 32 page 534 para 899 the meaning of the said expression is given as a certain sum of money payable yearly either as a personal obligation of the grantor or out of property not consisting exclusively of land it differs from a rent charge in that a rent charge issues out of land
In Bignold vs Giles3 annuity  is described thus An annuity is a right to receive de anno in annum a certain 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
 666 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 income arising from a certain capital fund
The three illustrations given under section 173 of the dealing with bequests of annuities also refer to the payment of certain definite sums periodically and they do not refer to periodical payments of income arising out of any trust fund
It is against this background that this Court proceeded to decide the case of Ahmed G H Ariff supra
In that case the Court was called upon to determine whether the benefits conferred on the appellants under a deed creating a wakf alal aulad were annuities or not
The relevant part of the deed which declared that the ultimate benefit in the case of complete intestacy of the descendants of the settlor was reserved for poor Musalmans of Sunni community deserving help read thus After payment of all necessary outgoings such as establishment charges collections charges revenue taxes costs of repairs law charges and other expenses for the upkeep and management of the said wakf property the mutawalli or mutawallis shall apply the net income of the said wakf property as follows viz a in payment to me during the term of my life of one fifth of the said net income by monthly instalments b in payment to each of my sons during the respective terms of their lives one sixth of the said net income by monthly instalments c in payment to my wife Aisha Bibi during the term of her life one tenth of the said net income by monthly instalments
The moneys payable as aforesaid to such of my sons as are minors shall until they attain the age of majority be respectively invested after defraying the expenses of their maintenance and education in proper securities or in landed property in Calcutta and such securities or property shall be 667 made over to the said sons on their respectively attaining the age of majority This Court held that the right of the beneficiary to receive an aliquot share of the net income of the properties was an asset covered by the definition of section 2e of the Act and not a mere annuity  and affirmed the decision of the Calcutta High Court in Ahmed G H Ariff vs Commissioner of Wealth Tax Calcutta1 In the case of Mrs Arundhati Balkrishna supra to which one of us was a party under two trusts created by the father of the assessee and one trust created by her mother in law she was to be paid annually the net income of each of the trusts after deducting costs and expenses of administration of the trust
Under the terms of the trusts after the life time 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 only amounted to a life interest
The decision of the High Court of Gujarat was later affirmed by this Court in Commissioner of Wealth tax Gujarat vs Arundhati Balkrishna2 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 vs Commissioner of Wealth tax 1966 59 ITR 230 Cal a Division Bench of the Calcutta High Court held that the right of a person to receive under a wakf an aliquot share of the net income of the wakf property is an asset within the meaning of the  and the capital value of such a right is assessable to wealth tax
Therein the Court repelled the contention that the right in question was an annuity
This decision was approved by this Court in Ahmed G H Ariff vs Commissioner of Wealth tax Civil Appeals Nos
2129 2132 of 1968 decided on 668 August 20 1969 and the same is binding on us
A similar view was taken by another Bench of the Calcutta High Court in Commissioner of Wealth tax vs Mrs Dorothy Martin In that case under the will of the assessee s father the assessee was entitled to receive for her life the annual interest accruing upon her share in the residuary trust fund
The Wealth tax Officer included the entire value of the said share in the assessable wealth of the assessee and subjected the same to tax under section 16 3 of the Wealth tax 1957
That order was confirmed by the Appellate Assistant Commissioner but the Tribunal in appeal excluded the same in the computation of the net wealth of the assessee
On a reference made to the High Court it was held that on a construction of the various clauses in the will the assessee was entitled to an aliquot share in the general income of the residuary trust fund and not a fixed sum payable periodically as annuity and therefore the value of her share was an asset to be included in computing his net wealth
These decisions in our view correctly lay down the legal position
In this view it is not necessary to consider whether the income receivable by the assessee under those deeds either wholly or in part is capable of being commuted into a lump sum grant
For the reasons mentioned above we agree with the High Court that payments to be made to the assessee under the three trust deeds cannot be considered as annuities and hence she is not entitled to the benefits of section 2e iv
 It is however contended on behalf of the assessee in this case that since the trust fund consisted of Government securities which were yielding definite annual income by way of interest and there was no evidence of the said securities having been converted into other securities yielding higher or lower income it should be assumed that the benefit conferred on the assesee 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 Commissioner of Wealth tax Rajasthan vs Her Highness Maharani Gayatri Devi of Jaipur1 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 1530 share from out 669 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 was an annuity
We see no force in this contention
The question whether a particular income is an annuity or not does not depend on the amount received in a particular year
What we have to see is what exactly was the intention of the Maharaja in creating the trust
Did he intend to give the assessee a pre determined sum every year or did he intend to give her an aliquot share in the income of a fund On that question there can be only one answer and that is that he intended to give her an aliquot share in the income of the trust fund
An income cannot be annuity in one year and an aliquot share in another year
It cannot change its character year after year
From the facts found it is clear that the assessee has life interest in the trust fund
 The decision of the High Court of Andhra Pradesh in Commissioner of Wealth tax A P vs Nawab Fareed Nawaz Jung Ors1 on which the High Court has relied in this case to the extent it takes a contrary view must be held to be incorrect
We may now to consider the decision in In re Duke of Norfolk Public Trustee vs Inland Revenue Commissioner2 on which the High Court relied heavily in arriving at its conclusion
The point which arose for consideration in the above case was whether where one continuing annuity for two or more lives was given to two or more persons in succession and charged on property on the death of any annuitant other than the last to die estate duly was payable under section 1 of the Finance Act 1894 on the footing that it was the annuity which passed on the annuitant s death
The estate duty authorities claimed estate duty on the death of an annuitant who was not the last of the annuitants to die on the slice of the capital required to produce the annuity on the footing that as annuitant the deceased had an interest on the capital charged with the annuity and that cesser of that interest gave rise to a benefit taxable under 670 section 21b of the Finance Act 1894
The Public Trustee in whom the estate vested claimed that estate duty became payable on the value of a continuing annuity for the life of the annuitant who succeeded to the annuity on the death of the deceased annitant
Jenkins LJ in the course of his judgment in the above case explained the difference between an annuity and a life interest thus An annuity charged on property is not nor is it in any 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 property rises or falls
The property which changes hands on his death or in other words passed under section 1 thus clearly consists of the designated share of capital which then passes from his beneficial enjoyment to that of another an annuity cannot be so related to any fixed proportion of capital See De Trafford vs Attorney General Evershed M R who delivered a separate judgment agreed with the observation and stated thus In the case of one who has enjoyed for his life say one fourth of the income of an estate it seems to me in accordance with common sense and a natural use of language to say that he enjoyed for his life that he was life tenant of a fourth part of the corpus of the estate and accordingly that upon his death a fourth part of the estate passed to the next successor
But no such language can in my judgment appropriately be used in the case of an annuitant
He is in no way concerned 671 with changes in the yield of the estate his right to his annuity will continue whatever income the estate may produce or unless he has a right to look income only though the estate produce no income at all The learned Master of the Rolls distinguished the cases of In re Northcliffe1 and Christie vs Lord Advocate2 from the case before him thus Both the two last mentioned cases were instances of dispositions of aliquot shares of the general income of an estate to be enjoyed in succession as distinct from an annuity or yearly sum which even though variable as in the case of In re Cassel 1927 2 Ch
275 is in no way dependent upon or related to the general income of the estate Accordingly the contention of the Crown was rejected
On going through the above decision carefully we do not find any support for the contention urged on behalf of the assessee in the present case
The decision is quite clear on the point that when the payment is dependent upon the income of the corpus it cannot be called an annuity and that an annuity even though it may be variable as in the case of In re Cassel3 can in no way be dependent upon or related to the general income of the estate
The High Court was therefore in error in relying upon the decision in Duke of Norfolk In re
Public Trustee supra for holding that notwithstanding the existence of the possibility of variation in the payment to be made in the above case to the assessee depending upon the income of the fresh securities to be acquired by the trustee on the redemption of any of the securities transferred at the time of the execution of the trust deed the payment would amount to an annuity
On a consideration of the decisions cited before us we feel that in order to constitute an annuity the payment to be made periodically should be a fixed or pre determined one and it should not be liable to any variation depending upon or on any ground relating to the general income of the fund or estate which is charged for such payment
In the instant case as observed in the case of Her Highness Maharani Gayatri Devi of Jaipur supra what we have to see is the intention of the settlor whether he wanted that the assessee should get a pre determined sum every year or whether the assessee 672 should get the whole net income of the trust fund
Since the intention of the settlor was indisputably the latter one the right of the assessee cannot be treated as an annuity
An additional factor which requires us to take the same view is that under the trust deed the trustees had been given the power to reinvest the proceeds of the Government securities which leads to the possibility of variation of the income and consequently of the amount to be received by the assessee
The fact that no such reinvestment had taken place during the relevant years is immaterial
In view of the foregoing the appeals are allowed the judgment of the High Court is set aside and the question referred to the High Court under section 271 of the Act is answered in the negative and against the assessee
In the circumstances of the case the assessee shall pay the costs of the Department
Hearing fee one set
Appeal allowed


Summary:
The respondent assessee under a deed of trust dated October 26 1937 executed by his father Pyarey Lal Banerji which was modified by another trust deed dated April 28 1950 received the net income of the trust funds after the death of his father
The assessee treated this amount as an annuity and claimed exemption under section 2eiv of the Wealth Tax Act 1957
The claim for exemption was negatived by all the authorities including the Appellate Tribunal Allahabad Bench
The Tribunal however holding 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 directed the Wealth Tax Officer to modify the assessments valuing the life interest of the assessee according to recognised principles of valuation
On a reference at the instance of the assesee the High Court held the interest of the assessee in the trust fund amounted to an annuity exempt under section eiv of the Wealth Tax Act
E Allowing the appeal by special leave and answering against the assessee the Court  HELD I In order to claim that an item of property should not be treated as an asset for purposes of the Wealth Tax Act by virtue of subclause iv of section 2e1 it has to be established a that it is an annuity and b that commutation of any portion thereof into a lumpsum grant is precluded by the terms and conditions thereto
663 C 2 It is true that the word annuity is not defined in the Act
In order to constitute an annuity the payment to be made periodically should be a fixed or pre determined one and it should not be liable to any variation depending upon or any ground relating to the general income of the fund or estate which is charged for such payment
The intention of the settlor must be seen whether he wanted that the assessee should get a pre determined sum every year or whether the assessee should get the whole net income of the trust fund
665 C 671 G In the instant case since the interest of the settlor was that the whole net income of the trust fund should go to the assessee the right of the assessee cannot be treated as an annuity
The fact that under the trust deed the trustee had been given the power to reinvest the proceeds of the Government securities leads to the possibility of variation of the income and Consequently of the amount to be received by the assessee
make it clear that it was not an annuity
The fact that no such reinvestment had taken place during the relevant year is immaterial
671 H 672 B 658 Ahmed GH Ariff  Ors
vs Commissioner of Wealth tax Calcutta  Commissioner of Wealth tax Gujarat II vs Mrs Arundhati Balkrishna 1968 70 ITR 203 explained and applied
Commissioner of Wealth tax Rajasthan vs Her Highness Maharani Gayatri Devi of Jaipur  followed
Commissioner of Wealth tax AP vs Nawab Fareed Nawaz Jung  ors  overruled
In re Duke of Norfolk Public Trustee vs Inland Revenue Commissioners distinguished