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

The assessee is the wife of the Maharaja of Jaipur. On September 9, 1953, the Maharaja made a settlement at London. Under the deed of settlement, he appointed Sir Harold Augustus Warner as the trustee of the property detailed in the deed of settlement. The settlement is an irrevocable one and the properties mentioned in the schedule to the trust deed stood transferred to the name of the trustee. The trust deed provides that the trustee should pay to the assessee during her lifetime 50 per cent. of the income of the trust fund. The question arose whether the assessee can be held to have any share in the corpus of the trust and whether the same can be brought to tax under the provisions ofthe Wealth-tax Act, 1957 (to be hereinafter referred to as "the Act"). The Wealth-tax Officer came to the conclusion that the assessees interest in the U. K. trust amounting to Rs. 15, 75, 694 plus the income-tax reserve thereon of Rs. 1, 75, 401 have to be included in the assessees total wealth. This decision was confirmed by the Appellate Assistant Commissioner in appeal. Thereafter, the assessee took up the matter in second appeal to the Income-tax Appellate Tribunal. The Tribunal, for the reasons set out in paragraphs 6 to 10, 12 and 13 of its order, held that the assessee did not get any life interest in the corpus but it held that her interest was an interest which was an asset under the Act but for section 2(e)(iv) of the Act. In other words, it held that the assessee had only a right to get an annuity from out of the trust fund and as such her right is exempt from wealth-tax in view of section 2(e)(iv) of the Act. In the view it took, the Tribunal considered that it was not necessary to ascertain the proper and correct method of valuation of the assessees right. It directed that if and when its conclusion on the interpretation of the clauses were set aside, the appeal should be posted again before it for further hearing for ascertaining the correct method of valuation At the instance of the department, the Tribunal stated the case and referred the following two questions to the High Court of Rajasthan for itsWhether, on a proper construction of the deed of settlement, the assessee has any interest in the corpus of the deed of settlement ?(2) Whether, in the facts and circumstances of this case, the right of the assessee derived under the deed of settlement is exempt from wealth-tax by virtue of the provisions of section 2(e)(iv) of the ActDivision Bench of that High Court answered the first question in the negative and the second question in the affirmative both against the department. The High Courtthat the assessee was not given any interest in the corpus of the property ;(2) that the income that the assessee was receiving on account of the 15/30 parts of the trust fund was in the nature of an annuity ;that the terms and conditions relating to the assessees right to annuity preclude commutation of any portion thereof into a lump sum grant

Court's reasoning:
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