Case: Commissioner of Wealth Tax, Rajasthan Vs. Her Highness Maharani Gayatri Devi of Jaipur

decisions, we have now to see as to what was the nature of the right conferred on the assessee under the trust deed.5. The trust deed starts by saying that "the settlor is absolutely entitled to the investments specified in the Schedule hereto (hereinafter called the scheduled property)" and that he is desirous of making an irrevocable settlement of the scheduled property for the benefit of his wife (the assessee) and his four sons. One of the clauses in the deed says that:"The settlor has accordingly transferred or intends forthwith to transfer the scheduled property into the name of the trustee to be held by him upon the trusts and with and subject to the powers and provisions hereinafter declared and contained concerning the same"Clause 1(d) of the deed is important. It reads:"The scheduled property and any other investments or property which may from time to time be transferred to and accepted by the trustee as additions to the scheduled property and any other capital moneys which may be received by the trustee in respect of the trust premises and the investments and property for the time being representing the same respectively are together called the trust fund."From this clause, it is clear that the "trust fund" is not a fixed sum. It is capable of being augmented in several ways.At the time of creation of the trust, the only assets mentioned in the schedule to the trust deed was pound 300, 000 3 1/2 % War Loan. But as seen earlier this fund was capable of being augmented.:Clauses of the trust deed which are relevant for our present purpose are clauses 2, 3, 4(1) and 7. They readClause 2 : "The trustee shall stand possessed of the scheduled property and any other investments or property which may from time to time be transferred to and accepted by the trustee as aforesaid UPON TRUST that the trustee may either allow the same to remain actually invested so long as the trustee thinks fit or may at any time or times at his discretion sell call in or convert into money the same or any part thereof and shall at his discretion (but subject to the restriction contained in clause 9 hereof) invest the moneys produced thereby and any other capital moneys which may be received by him in respect of the trust premises in the name or under the legal control of the trustee in or upon any investments hereby authorised with power at his discretion to vary or transpose any investments for or into others of any nature hereby authorised."Clause 3 : "The trustee shall divide the trust fund into thirty equal parts and shall stand possessed of such parts and the income thereof respectively upon the trusts and with and subject to the powers and provisions hereinafter declared and contained concerning the same."Clause 4(1) : "THE TRUSTEE shall stand possessed of fifteen such parts of the trust fund UPON TRUST to pay the income thereof to the wife during her life and after her death shall hold the said fifteen such parts of the trust and and the income thereof upon the same trusts and with and subject to the same powers and provisions as are hereinafter declared and contained concerning the share in the trust fund which is hereinafter directed to be held in trust for the said Maharaj Kumar Jagat Singh or as near thereto as circumstances will admit."Clause 7 : NOTWITHSTANDING the trusts hereinbefore declared the trustee if he in his absolute discretion thinks fit may at any time by writing under his hand declare that the whole or any part of the share (whether original or accruing) in the trust fund to the income whereof any beneficiary shall then be entitled in possession or any property appropriated in or towards the satisfaction of such share shall thenceforth be held IN TRUST for such beneficiary absolutely and thereupon the trusts hereinbefore declared concerning such share or the part thereof or the property to which such declaration relates shall forthwith determine and the trustee may at any time thereafter transfer such share or the part thereof or the property to which such declaration relates to such beneficiary absolutely"6. 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 fundMr. 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 an 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 a life interest in the trust fund.7.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]If it is considered as an annuity, there is no dispute that the terms and conditions relating to the assessees right relating to annuity precluded commutation of any part thereof into a lump sum grant. Therefore, all that we have to see is whether the income received by the assessee was an annuity or an aliquot share in the income arising from the fund. As seen earlier, the High Court has taken the view that the income in question was an annuity. In arriving at that conclusion, it has referred to various decisions of the English courts as well as the courts in this country. But, in view of the two recent decisions of this court, it is not necessary for us to examine thosethese 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 fundMr. 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 an 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 a life interest in the trustthis clause, it is clear that the "trust fund" is not a fixed sum. It is capable of being augmented in severalthe time of creation of the trust, the only assets mentioned in the schedule to the trust deed was pound 300, 000 3 1/2 % War Loan. But as seen earlier this fund was capable of being augmented